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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMMISSION FILE NUMBER 0-18690
RADIUS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 68-0101300
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION
NUMBER)
215 MOFFETT PARK DRIVE
SUNNYVALE, CA 94089
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES,
INCLUDING ZIP CODE)
(408) 541-6100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
---------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF THE REGISTRANTS KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. (X)
AS OF DECEMBER 15, 1995
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AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT BASED ON THE CLOSING
BID PRICE OF SUCH STOCK: $43,739,556
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING: 17,401,094
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD FEBRUARY 21, 1996 ARE INCORPORATED BY REFERENCE INTO
PART III (ITEMS 10, 11, 12, AND 13) HEREOF.
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RADIUS INC.
1995 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I Page
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ITEM 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 10
ITEM 4. Submissions of Matters to a Vote of Security Holders. . . . 10
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Shareholder Matters. . . . . . . . . . . . . . . . . . . 13
ITEM 6. Selected Financial Data . . . . . . . . . . . . . . . . . . 13
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . 15
ITEM 8. Financial Statements and Supplementary Data . . . . . . . . 26
ITEM 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . 26
PART III
ITEM 10. Directors and Executive Officers of the Registrant. . . . . 27
ITEM 11. Executive Compensation. . . . . . . . . . . . . . . . . . . 27
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . 27
ITEM 13. Certain Relationships and Related Transactions. . . . . . . 27
PART IV
ITEM 14. Exhibits, Financial Statements, Financial Statement
Schedule, and Reports on Form 8-K. . . . . . . . . . . . . 28
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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PART I
ITEM 1. BUSINESS
OVERVIEW
Radius Inc. (the "Company" or the "Registrant" or "Radius") designs, develops,
manufactures, markets and supports color publishing and digital video computer
products for creative professionals. The Company's current product line
includes: accelerated color graphics products that facilitate the creation and
manipulation of graphical images; video systems and software that can acquire
and manipulate video and audio information; high resolution color reference
displays that allow users to view two full pages of text, graphics, images and
video; and Macintosh operating system ("MacOS") compatible computer systems.
The primary target markets for the Company's products are color publishing and
multimedia. These markets encompass creative professionals involved in such
areas as color prepress, graphic arts, video editing, video and multimedia
production and playback, and corporate training.
To date substantially all of the Company's products have been designed for and
sold to users of Macintosh computer products (the "Macintosh") manufactured by
Apple Computer, Inc. ("Apple") as Apple products have been the preferred
platform in the Company's target markets.
As shown in the accompanying consolidated financial statements, the Company has
incurred substantial operating losses and has a deficiency in assets and working
capital. Management has implemented, or has developed plans to implement, a
number of actions to address this situation including: refocusing its efforts on
providing solutions for high end digital video and graphics customers;
discontinuing sales of mass market and other low value added products; divesting
its color server and monochrome display businesses and exploring opportunities
for the divestiture of its MacOS compatible systems products and other product
lines; significantly reducing expenses and headcount; subleasing all or a
portion of its current facility given its reduced occupancy requirements; and
investigating various strategic partnering opportunities.
The Company acquired SuperMac Technologies, Inc. ("SuperMac") effective August
31, 1994 (the "Merger"). The Company's executive offices are located at 215
Moffett Park Drive, Sunnyvale, CA 94089, and its telephone number is (408) 541-
6100.
PRODUCTS AND APPLICATIONS
A summary of some of the Company's principal products and their typical
applications is set forth below:
<TABLE>
<CAPTION>
PRODUCT CATEGORY PRODUCT MARKET/APPLICATION
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<S> <C> <C>
Accelerated Color ThunderColor 30/1600 Color publishing, prepress, graphics
Graphics Products ThunderColor 30/1152 design and professional color imaging
(PCI-based) Thunder 30/1600
Thunder 30/1152
PrecisionColor 8/1600
ColorEngine
(NuBus-based) Thunder IV GXY1600
Thunder IV GXY1360
Thunder/24 GT
PrecisionColor Pro 24X
PrecisionColor 8XJ
PhotoEngine
</TABLE>
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<TABLE>
<CAPTION>
PRODUCT CATEGORY PRODUCT MARKET/APPLICATION
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<S> <C> <C>
Digital Video Systems Radius Telecast Professional quality video production,
and Software VideoVision Studio multimedia production, video production
Radius Edit for corporate training and education, video
QuickFlix! editing and special effects software
VideoFusion
Color Reference PressView 21SR Color publishing, prepress and graphics
Displays PressView 17SR design
PrecisionView 21
Color Management ProSense Display Calibrator Color publishing and prepress
Products Color Composer
MacOS Compatible Radius 81/110 Color publishing and digital video
Systems Radius System 100 content providers
Color Server Splash MX Color publishing, office color printing
Products Splash MX Plus and scanning
Splash TX
</TABLE>
ACCELERATED COLOR GRAPHICS PRODUCTS
The Radius graphics product families offer a wide range of user choices to
enhance the graphics performance of Apple Macintosh computers based on both the
NuBus and PCI bus architectures. The choices range from an entry level
accelerated 8-bit color graphics card (256 colors with up to 1 million pixels of
color display information) to a variety of accelerated 24-bit color graphics
cards (up to 16.7 million colors). All of the Company's graphics card products
offer a range of high speed QuickDraw acceleration features and support numerous
Radius, Apple and other third-party displays ranging from 13-inches to 21-inches
in size. The Company's graphics card products also allow the user to switch
resolutions "on-the-fly" without having to reboot the computer.
The ThunderColor (PCI) and Thunder IV (NuBus) class graphics cards offer
enhanced resolutions, as well as a number of other acceleration capabilities for
Adobe Photoshop, a popular application for working with computer images. These
graphics cards also feature hardware pan and zoom capability, enabling users to
quickly change the size and the amount of the information on their color
display. The Company believes these capabilities allow users working with large
amounts of detailed information to be more productive because they can quickly
accomplish a variety of tasks using these hardware-based acceleration features.
The ThunderColor (PCI), Thunder 30 (PCI), and Thunder IV (NuBus) graphics cards
include multiple 66 MHz AT&T digital signal processors ("DSPs") that accelerate
Adobe Photoshop. Having parallel processing DSPs rather than the base
Macintosh's CPU perform the millions of computations required to manipulate
Photoshop images means that customers can produce finished results more quickly
and are more productive in their creative and production process. These cards
include chip technology that enables users to use Photoshop's CMYK color mode
faster than the native Macintosh. This is attractive to imaging professionals
who use Photoshop to work with and edit images comprised of 'ink' data which is
ready for printing. The Company believes this special "CMYK acceleration"
technology makes working with ink images on a computer display more interactive.
DIGITAL VIDEO SYSTEMS AND SOFTWARE
Radius offers a number of products for the non-linear digital video editing and
production market. Non-linear digital editing enables video editors to
manipulate pictures and sound in a faster, easier and more cost effective manner
than traditional analog tape-based systems. Editors can randomly access and
digitally "cut and paste" images, videos and sound clips avoiding the tedious
process of winding and rewinding of linear tape and the subsequent physical
cutting and splicing of film segments.
VideoVision Studio, Radius' leading desktop video product, was the first fully
QuickTime compatible video editing and production system that supported full-
screen (640 x 480 pixels), full-motion video at 60-fields per-second.
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VideoVision Studio offers JPEG video compression/decompression capabilities, 16-
bit stereo audio, and allows users to output their finished product directly and
easily to videotape. VideoVision Studio is compatible with QuickTime based
software applications for editing, effects, titling, graphics, animation and
audio.
Radius Telecast offers broadcast quality digital video for short form projects.
Radius Telecast features include: high-quality, Betacam SP component, S-
video and composite digitizing and play back; QuickTime-compliant video system
software; 16-bit analog audio; and a 19" rack-mountable design. Radius
Telecast is designed to provide full QuickTime support, a high degree of studio
integration and professional video and audio support.
Radius also offers a variety of QuickTime compliant digital video software
applications that facilitate the creation and editing of digital video content.
Radius Edit is a non-linear professional digital video editing solution that
features an intuitive user interface, FX templates, built-in titling, multiple
key frames, batch digitizing and picture-in-picture capabilities. VideoFusion
offers a variety of high-quality special effects for digital video editing
including dynamic morphing, warping, pan-zoom-rotating, titling, chroma keying
and compositing. QuickFLIX! is an inexpensive entry level application for
creating QuickTime movies for business and education presentations.
DISPLAYS
The Company currently offers a variety of large color reference displays
designed for desktop color publishers and graphic artists. The PressView SR
series (PressView 21SR and PressView 17SR) is designed to offer the color
accuracy, resolution and clarity needed for high quality color prepress, media
authoring, photography, medical imaging and scientific image processing. These
color reference displays offer consistent and accurate color preproofing at
resolutions of up to 1600 by 1200 pixels and support advanced Diamondtron
technology. The PrecisionView 21 also offers resolutions of up to 1600 by 1200
pixels but at a lower price point. When used with Radius' ProSense Display
Calibrator, the PressView SR series and the PrecisionView 21 support Kodak
PrecisionColor, Agfa FotoFlow, Apple ColorSync 2.0 and EFI Color management
systems to ensure color accuracy.
In the past, the Company has also offered a variety of monochrome displays. As
part of its strategy to refocus its business, the Company entered into a
definitive agreement on December 21, 1995 to sell its monochrome display
business to Display Technologies Electrohome Inc. For a more complete
discussion see "Management's Discussion and Analysis of Financial Condition --
Business Divestitures."
COLOR MANAGEMENT PRODUCTS
Color peripherals tend to vary over time from their original specifications,
thus causing significant color variances. Display calibrators control the
way peripherals produce color, making the color more consistent and
predictable. The Company's Prosense Display Calibrator works with sensing
technology and Macintosh software to measure the actual color performance of
a display and then adjust information in the Macintosh graphics card so that
the colors will be "in balance." This product also communicates with a
number of third party color management systems to provide color information
about the display so that color can be managed from one peripheral to another.
MACOS COMPATIBLE SYSTEMS
The Company currently offers two MacOS-compatible systems for the color
publishing and multimedia markets: The Radius 81/110 and the Radius System 100.
The Radius 81/110 is based on Apple's 110 MHz PowerPC 601 processor and is
designed for the NuBus bus architecture. The Radius 81/110 provides the user
with a base system that can then be customized to meet the users specific
color publishing or multimedia needs. The Radius System 100 is preconfigured
with Radius' Thunder IV GXY1600 graphics card, a 2 gigabyte hard drive and
preloaded application software.
Radius faced a number of challenges in entering the MacOS-compatible systems
market including shortages of MacOS compatible systems components, Apple's
transition from NuBus to PCI based systems that resulted in severe price erosion
for NuBus based systems, manufacturing start-up issues, and the availability of
sufficient capital to finance the business. For these and other reasons, the
Company is now negotiating to sell its MacOS compatible systems business.
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COLOR SERVER PRODUCTS
The Company's Splash color server products enable customers to turn their Xerox
MajestiK Color Copiers into printers and scanners that operate over a network.
A Splash card is configured in a Macintosh computer and works in concert with
Adobe CPSI (Configurable Postscript Interpreter) software to turn complex images
of text, graphics and photographic information into high-resolution (400 dpi),
high quality color prints. Splash cards process computer information and then
quickly send it to a MajestiK Color Copier so that the copier engine technology
can operate as a color printer connected to a network (Macintosh or PC). Both
the Splash MX Plus and the Splash TX products also enable customers to use the
Majestik scanning technology to capture high-resolution color images and
download their images to their computer.
On December 23, 1995, the Company entered into a definitive agreement to sell
its color server business to Splash Technology, Inc., a company in which Radius
will retain a 19.9% equity interest, for approximately $21.9 million. That sale
is anticipated to be completed in January 1996. For a more complete discussion
see "Management's Discussion and Analysis of Financial Condition -- Business
Divestitures."
TECHNOLOGY AND PRODUCT DEVELOPMENT
The Company's research and development efforts are focused on creating new
products and technologies for customers who create, review, approve and utilize
high resolution color images and moving video. Current research and development
efforts include: (i) performance improvements and cost reductions of current
products; (ii) development of 3D graphics subsystems; (iii) development of
application software to facilitate the creation and manipulation of video and
high resolution still images; (iv) development of integrated software that
improves ease of use and functionality of the Company's graphics cards, digital
video cards, and color reference displays; and (v) development of next
generation technology to enable new methods of displaying and creating
information with greater flexibility, speed, and quality.
The principles and features underlying the design of the Company's products are:
identification and reduction of performance bottlenecks in graphics and video
systems; providing consistency of color fidelity across products and
applications; utilization of ASIC technology; and innovation within standard
operating system environments.
IDENTIFICATION AND REDUCTION OF BOTTLENECKS IN GRAPHICS AND VIDEO SYSTEMS
The Company analyzes the performance of applications and hardware products
within the environment of the host CPU and operating system with the goal of
determining which parts of the overall solution are most resource and time
intensive so that products can be developed which outperform the existing
solutions. The Company has developed considerable knowledge of system software
such as Apple's QuickDraw and QuickTime and critical application software such
as Adobe Photoshop. The Company believes that its ability to eliminate
bottlenecks in a manner that is compatible with existing Apple and third party
products is a significant advantage in the marketplace.
PROVIDING CONSISTENCY OF COLOR FIDELITY ACROSS PRODUCTS AND APPLICATIONS
The Company strives to provide users with the most accurate and repeatable color
available. The Company's high-end color reference displays provide tools to
calibrate the display with both objective standards and visual perception, and
to adjust the color range of the display to fit user needs.
UTILIZATION OF ASIC TECHNOLOGY
On a selective basis, the Company uses its in-house integrated computer aided
engineering capabilities to develop proprietary ASIC chips for use in its own
products. The use of ASIC chips allows the Company to increase performance
while reducing chip count and board size which thereby reduces cost. ASICs are
used heavily throughout the Company's graphics card line. In some cases,
however, commercially available devices offer better overall price/performance
than proprietary ASICs (given the development cost involved), and the Company's
strategy is to make the tradeoff on a product-by-product basis to provide the
most cost-effective solution.
INNOVATION WITHIN STANDARD OPERATING SYSTEM ENVIRONMENTS
In order to maintain compatibility with the broad existing base of installed
hardware and software, the Company seeks to innovate in conjunction with
existing standards. For example, the Company's graphics cards are
compatible with third party graphics software (such as Adobe Photoshop and Quark
Pagemaker) as well as NuBus
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and PCI-based computers. Similarly, the Company's digital video cards are
tightly integrated into Apple's standard QuickTime environment.
The Company believes that the competitive nature of the computer industry, along
with the rapid pace of technological evolution, requires that it continue to
introduce innovative products on a timely basis to compete effectively. During
fiscal 1995, 1994 and 1993, the Company's expenditures for research and
development totaled $19,310,000, $33,956,000, and $33,503,000, respectively. To
date, all of the Company's research and development expenditures have been
charged to operations as incurred.
There can be no assurance that the Company's development efforts will result in
commercially successful products, or that the Company's products will not be
rendered obsolete by changing technology or new products introduced by others.
Additionally, should the Company fail to introduce new products on a timely
basis, the Company's operating results could be adversely affected. For a more
complete discussion see "Management's Discussion and Analysis of Financial
Condition -- Certain Factors That May Affect the Company's Future Results of
Operations -- Technological Change; Continuing Need to Develop New Products."
MARKETING, SALES AND DISTRIBUTION
The Company employs a two-tiered distribution model whereby it sells its
products primarily through a limited number of distributors and master resellers
that in turn distribute the Company's products to variety of resellers including
superstores, independent dealers, educational resellers, systems integrators,
value added resellers and mail order resellers. The Company's distributors and
master resellers purchase products at discounts from suggested retail prices
based on purchase volumes.
In the United States, the Company sells its products primarily through the
following major distributors and master resellers: Ingram Micro, Inc.;
Intelligent Electronics; and MicroAge. The Company's business and financial
results are highly dependent on the success of these distributors and master
resellers. To assist these domestic distributors and master resellers and to
provide marketing, training and technical support, the Company maintains field
sales facilities in a number of locations throughout the United States. For a
more complete discussion see "Management's Discussion and Analysis of Financial
Condition -- Certain Factors That May Affect the Company's Future Results of
Operations -- Distribution."
Since fiscal 1993, the Company has utilized the Reseller Alliance Marketing
Program ("RAMP") for its domestic sales channel. Under RAMP, distributors and
master resellers that meet certain volume sales commitments and reporting
capabilities are extended deeper discounts than other distributors and master
resellers on the Company's higher margin products such as graphics cards
and digital video products. RAMP also includes a market
development funding program that gives distributors and master resellers
incentives to lower returns, increase sales, improve reporting and achieve a
product mix favoring higher margin products.
Internationally, sales are made through worldwide distributors, which market,
sell and service the Company's products, and through the Company's wholly owned
subsidiary located in Tokyo, Japan. In addition to its facilities in Japan, the
Company maintains international sales offices in Surrey, England; Hamburg,
Germany; and Paris, France.
For the fiscal years ended September 30, 1995, 1994 and 1993, the Company's
export sales accounted for approximately 40.4%, 34.5%, and 32.0%, respectively,
of the Company's net sales. See Note 7 of Notes to Consolidated Financial
Statements.
The Company's export sales are subject to certain risks common to
international operations, such as currency fluctuations and governmental
regulations. For a more complete discussion see "Management's Discussion and
Analysis of Financial Condition --Certain Factors That May Affect the
Company's Future Results of Operations --International Sales."
For the fiscal years ended September 30, 1995, 1994 and 1993, Ingram Micro, Inc.
accounted for approximately 34.0%, 13.5% and 11.5% of the Company's net sales,
respectively.
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Many of the Company's distributors and master resellers have the right to return
products purchased from the Company. While the Company provides for estimated
product returns, if in the future the Company were to experience returns from
customers significantly in excess of this estimate, such returns could have a
material adverse effect on the Company's results of operations.
The Company's marketing programs support worldwide sales and distribution of its
products. The Company's principal marketing activities include frequent
participation in industry trade shows and seminars, advertising in major trade
publications worldwide, public relations activities with the trade and business
press, publication of technical articles, distribution of sales literature and
product specifications and communications with its installed base of end users.
The Company's marketing programs are designed to generate sales leads for its
distributors and master resellers as well as to enhance the Company's brand name
recognition.
MANUFACTURING
As a result of the Company's outsourcing of manufacturing, substantially all of
the Company's assembly, quality control testing, packaging and other
manufacturing operations are performed by the Company's suppliers, contract
manufacturers, and other subcontractors. The Company has developed a quality
assurance program with these third parties.
The Company attempts to utilize standard parts and components available from
multiple vendors. However, certain components used in the Company's products
are available only from sole or limited suppliers, such as certain ASICs from
LSI Logic and certain VideoVision parts from Toshiba. The Company's products
also incorporate components, such as video random access memory, that are
available from multiple sources but have been subject to substantial
fluctuations in availability and price. Although the Company has been able to
obtain an adequate supply of such components in the past, there can be no
assurance that it will be able to obtain an adequate supply in the future. For
a more complete discussion see "Management's Discussion and Analysis of
Financial Condition -- Certain Factors That May Affect the Company's Future
Results of Operations -- Dependence on Suppliers."
COMPETITION
The color publishing and multimedia markets are, and are expected to remain,
highly competitive. The Company's principal competitors in the color
publishing market include Apple, ATI Technology and Diamond Multimedia
Systems. The Company's principal competitors in the multimedia market
include Truevision (formerly RasterOps Corporation), Data Translation, Inc.,
Matrox, Inc., Avid Technology, Inc., VideoLogic, Inc. and Fast Electronics
Gmbh. The market for the Company's products is evolving, and it is difficult
to predict all future sources of competition.
Although Apple is principally a supplier of general purpose computing platforms
upon which third parties are encouraged to build more complete solutions, the
Company also faces competition from Apple. Apple markets a number of products,
including computer systems and color displays, that compete directly or
indirectly with the Company. Apple also could introduce additional products,
add functionality to their computer systems that is similar to that provided by
certain of the Company's products, or alter its systems' architecture in a
manner that could adversely affect the Company's ability to compete. For
example, Apple's PowerPC based products which have on-board graphic
functionality and faster processing speed, could be considered competitors of
specific product lines of the Company's. For a more complete discussion see
"Management's Discussion and Analysis of Financial Condition -- Certain Factors
That May Affect the Company's Future Results of Operations -- Dependence on and
Competition With Apple."
The Company believes that the principal competitive factors for its product
line are product performance, breadth of distribution, brand name recognition,
price and customer support. There can be no assurance that the Company will be
able to compete successfully with respect to these factors In addition, many of
the Company's current and prospective competitors have significantly greater
technical, manufacturing and marketing resources that the Company. For a more
complete discussion see "Management's Discussion and Analysis of Financial
Condition -- Certain Factors That May Affect the Company's Future Results of
Operations -- Competition."
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PATENTS AND LICENSES
The Company has been granted patents in the United States and in foreign
countries and also has pending United States and foreign patent applications.
The Company also has registered some of its trademarks in the United States and
in foreign countries and has several trademark applications pending in the
United States and other countries. In addition, the Company attempts to protect
its software and other intellectual property under copyright and trade secret
laws, through agreements with employees and consultants, and by other security
measures.
Although the Company believes that the ownership of patents, copyrights, trade
secrets and trademarks is an important factor in its business, the Company
relies primarily on the innovative skills, technological expertise and marketing
abilities of its employees. The Company continues to implement protective
measures and intends to defend its intellectual property rights, but there can
be no assurance that these measures will be successful. For a more complete
discussion see "Management's Discussion and Analysis of Financial Condition --
Certain Factors That May Affect the Company's Future Results of Operations --
Dependence on Proprietary Rights."
EMPLOYEES
As of December 15, 1995, the Company had approximately 237 full time
employees. The Company anticipates reducing its work force to under 200
employees as a result of the sale of its color server group.
The Company's success will depend, in large measure, on its ability to attract
and retain highly qualified technical, marketing, engineering and management
personnel, who are in great demand. For a more complete discussion see
"Management's Discussion and Analysis of Financial Condition -- Certain Factors
That May Affect the Company's Future Results of Operations -- Dependence on Key
Personnel."
The Company's employees are not represented by any collective bargaining
agreements, and the Company has never experienced a work stoppage. The Company
believes that its employee relations are good.
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ITEM 2. PROPERTIES
The Company's primary facilities are located in Sunnyvale, California and
consist of an 153,000 square foot building. These facilities, which house all
of the Company's engineering, marketing, operations, finance and administration,
and sales management operations, are substantially larger than the Company
currently requires given recent reductions in its workforce. The Company is now
attempting to sublease all or a portion of this facility. The lease on the
primary facility will expire in March 1998.
The Company has subleased to other companies approximately 281,000 square feet
of facilities which the Company is currently not using.
The Company maintains field sales facilities in a number of locations
throughout the United States as well as in Surrey, England; Paris, France;
Hamburg, Germany; and Tokyo, Japan. For additional information concerning
the Company's lease commitments, see Note 3 of Notes to Consolidated
Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
(a) On November 16, 1995, Electronics for Imaging, Inc. ("EFI") filed a suit in
the United States District Court in the Northern District of California alleging
that the Company infringes a patent allegedly owned by EFI. Although the
complaint does not specify which of the Company's products allegedly infringe
the patent, subsequent pleading indicates that EFI alleges that the Company's
Color Server products allegedly infringe. The Company's Color Server products
are material to its business.
The Company has filed an answer denying all material allegations, and has filed
counterclaims against EFI alleging causes of action for interference with
prospective economic benefit, antitrust violations, and unfair business
practices. EFI has filed a motion to dismiss or sever the Company's
counterclaims. The Company believes it has meritorious defenses to EFI's claims
and is defending them vigorously. In addition, the Company believes it may have
indemnification rights with respect to EFI's claims. In the opinion of
management, based on the facts known at this time, the eventual outcome of this
case is unlikely to have a material adverse effect on the results of operations
or financial position of the Company.
(b) In September 1992, the Company and certain of its officers and directors
were named as defendants in a securities class action litigation brought in the
United States District Court for the Northern District of California that sought
unspecified damages, prejudgment and post judgment interest, attorneys' fees,
expert witness fees and costs, and equitable relief. In July 1994, SuperMac and
certain of its officers and directors, several venture capital firms and several
of the underwriters of SuperMac's May 1992 initial public offering and its
February 1993 secondary offering were named as defendants in a class action
litigation brought in the same court that sought unspecified damages,
prejudgment and post judgment interest, attorneys' fees, experts' fees and
costs, and equitable relief (including the imposition of a constructive trust on
the proceeds of defendants' trading activities).
In June 1995, the Court approved the settlement of both litigations and entered
a Final Judgment and Order of Dismissal. Under the settlement of the litigation
brought in 1992 against the Company, the Company's insurance carrier paid $3.7
million in cash and the Company will issue a total of 128,695 shares of its
Common Stock to a class action settlement fund. In the settlement of the
litigation brought in 1994 against SuperMac, the Company paid $250,000 in cash
and will issue into a class action settlement fund a total of 707,609 shares of
its Common Stock. The number of shares to be issued by the Company will
increase by up to 100,000 if the price of the Company's Common Stock is below
$12 per share during the 60-day period following the initial issuance of shares.
See Note 3 of Notes to Consolidated Financial Statements.
(c) In January 1995, a patent infringement lawsuit was filed in the United
States District Court for the Northern District of California by Mark C. Koz.
Mr. Koz is the alleged holder of a patent involving video pixel data transfer
and claims that Radius infringes that patent. The complaint sought injunctive
relief and damages in an unspecified amount. The complaint did not specify
which products of the Company allegedly infringed the patent; subsequent
pleadings indicated that the plaintiff contended that Radius' VideoVision line
of products infringed the patent. The Company licensed the technology for the
products in question from Apple and has certain limited contractual
-10-
<PAGE>
indemnification rights from Apple. On November 14, 1995 the parties entered
into a Patent License and Settlement Agreement which granted to the Company a
license under the patent for a small one time fee.
(d) The Company was named as one of approximately 42 defendants in Shapiro et
al. v. ADI Systems, Inc. et al., Superior Court of California, Santa Clara
County, case no. CV751685, filed August 14, 1995. Radius was named as one of
approximately 32 defendants in Maizes & Maizes et al. v. Apple Computer et al.,
Superior Court of New Jersey, Essex County, case no. L-13780-95, filed December
15, 1995. Plaintiffs in each case purport to represent alleged classes of
similarly situated persons and/or the general public, and allege that the
defendants falsely advertise that the viewing areas of their computer monitors
are larger than in fact they are.
The Company was served with the Shapiro complaint on August 22, 1995, and has
not yet been served with the Maizes complaint. Defendants' petition to the
California State Judicial Council to coordinate the Shapiro case with similar
cases brought in other California jurisdictions was granted in part and it is
anticipated that the coordinated proceedings will be held in Superior Court of
California, San Francisco County. Discovery proceedings have not yet begun in
either case. In the opinion of management, based on the facts known at this
time, the eventual outcome of these cases is unlikely to have a material adverse
effect on the results of operations or financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of Shareholders (the "Special Meeting") was held on August 23,
1995. The sole matter voted upon at this Special Meeting was a proposal to
increase the number of shares reserved for issuance under the Company's 1990
Employee Stock Purchase Plan from 300,000 to 650,000. The proposal was approved
with 13,089,331 affirmative votes, 306,300 negative votes, and 136,127 votes
abstaining.
ITEM 4A. EXECUTIVE OFFICERS OF REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Charles W. Berger 41 Chairman of the Board of Directors, Chief Executive
Officer and President
Weldon D. Bloom 46 Vice President, North American Sales
Douglas W. Boake 30 Vice President and General Manager, Pacific, Asia and
Latin America.
Patrick A. Burns 48 Vice President and General Manager, Video and
Graphics
Dennis J. Dunnigan 40 Chief Financial Officer
Mary E. Godwin 37 Vice President, Operations
Keith M. Harris 37 Vice President and General Manager, Europe
Kevin K. MacGillivray 36 Vice President and General Manager, Publishing
Gregory M. Millar 39 Vice President, Research
</TABLE>
-11-
<PAGE>
MR. BERGER was appointed President, Chief Executive Officer and a director of
the Company in March 1993 and Chairman of the Board of Directors in March 1994.
From April 1992 until he joined the Company, Mr. Berger was Senior Vice
President, Worldwide Sales, Operations and Support for Claris Corporation
("Claris"), a subsidiary of Apple that develops and markets application
software. From February 1991 to April 1992, he was President of Sun
Microsystems Federal, Inc., a subsidiary of Sun Microsystems, Inc. ("Sun"), a
manufacturer of computer work stations. From July 1989 to February 1991, he
served as Vice President of Business Development for Sun, and from March 1989 to
July 1989, he was Sun's Vice President of Product Marketing. From April 1982 to
March 1989, Mr. Berger held numerous management positions involving, sales,
marketing, business development and finance for Apple.
MR. BLOOM was appointed Vice President of North America Sales when he joined the
Company in July 1994. From December 1992 until he joined the Company, Mr. Bloom
was Vice President of North American Sales for EO Inc., a manufacturer of pen-
based computers. Mr. Bloom also spent eight years at Apple where he held a
number of sales management positions including Director of Channel Sales and
Development for Apple USA from July 1989 to April 1992 and Western Regional
Manager for the Business Market Development Division from April 1992 to December
1992.
MR. BOAKE was appointed Vice President and General Manager, Pacific, Asia and
Latin America when he joined the Company in September 1993. From January 1993
until he joined the Company, Mr. Boake was President and Representative Director
of Claris Japan Inc., a wholly owned Japanese subsidiary of Claris. He was
managing director of Claris Pacific from October 1988 to January 1993.
MR. BURNS was appointed Vice President and General Manager, Video and Graphics
when he joined the Company in June 1995. From April 1994 until he joined the
Company, Mr. Burns was Vice President, West Coast Operations for Chyron Corp., a
manufacturer of digital electronics graphics equipment. He was Director of
International Marketing for VeriFone Inc., a manufacturer of transaction
automation systems, from May 1993 to April 1994.
MR. DUNNIGAN joined Radius in August 1995 as Chief Financial Officer. Since
1986, Mr. Dunnigan has provided financial consultancy services and served as
chief financial officer to a number of publicly-held companies in variety of
industries including computers and high technology.
MS. GODWIN was appointed Vice President, Operations in August 1995 and prior to
assuming that position served as the Company's Director of Operations
Engineering beginning when she joined the Company in July 1993 . Prior to
joining the Company, Ms. Godwin spent seven years with Apple as a supply base
manager, and seven years with Xerox Corporation ("Xerox"), a diversified
manufacturer of document copying and processing equipment, as a technical
specialist.
MR. HARRIS was appointed Vice President and General Manager, European Operations
in March 1994. He joined the Company in June 1990 as Director of UK Operations
and was appointed Managing Director of Radius UK Limited, a subsidiary of
Radius, in May 1991. From 1978 until joining the Company, Mr. Harris worked for
Rank Xerox, a subsidiary of Xerox, in a variety of sales management positions
concluding manager of the Indirect Operations Group where he was responsible for
channel management and a wide variety of business units.
MR. MACGILLIVRAY was appointed Vice President and General Manager, Publishing in
April 1995. He joined the Company in January 1994 as Director, OEM Programs.
Prior to joining the Company, Mr. MacGillivray served as Vice President, General
Manager at ICE Graphics from 1983 to 1994.
MR. MILLAR was appointed Vice President, Engineering and Chief Technology
Officer in October 1995 and prior to assuming that position served as the
Company's Vice President, Research from October 1993 to October 1995, and as
Vice President, Engineering from July 1991 to October 1993. From January 1989
to July 1991, he held various managerial positions in the Company including
General Manager of the Advanced Development Group, General Manager of the
Macintosh Business Unit and Director of Software Development. Prior to joining
the Company, Mr. Millar was Vice President of Engineering and a founder of Infa
Corporation, a pen-based computing company, from June 1987 to December 1988.
-12-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market on the
Nasdaq National Market under the symbol "RDUS." The following table sets forth,
for the periods indicated, the high and low bid prices of the Common Stock as
reported on the Nasdaq National Market, giving effect to the one-for-two reverse
stock split of its Common Stock, which first affected trading on August 31,
1994. These prices reflect inter-dealer bid prices and do not include retail
markups, mark downs or commissions.
1995 Fiscal Year
- ----------------
Quarter 1 ended December 31, 1994 10 1/4 to 7 5/8
Quarter 2 ended March 31, 1995 14 1/2 to 9
Quarter 3 ended June 30, 1995 13 3/4 to 9 1/8
Quarter 4 ended September 30, 1995 12 1/2 to 6 15/16
1994 Fiscal Year
- ----------------
Quarter 1 ended December 31, 1993 17 1/2 to 7 1/4
Quarter 2 ended March 31, 1994 17 3/4 to 13 3/4
Quarter 3 ended June 30, 1994 15 1/2 to 8 3/4
Quarter 4 ended September 30, 1994 10 1/4 to 8
As of December 15, 1995, there were 598 holders of record of the Company's
Common Stock, which does not include those who held in street or nominee name.
The Company has never declared or paid any cash dividends on its capital stock.
In addition, the Company's revolving line of credit agreements require the prior
written consent of the lenders before the Company can pay any cash dividend on
its capital stock. The Company anticipates that it will retain earnings for use
in the operation and expansion of its business and does not anticipate paying
any cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction
with the consolidated financial statements and the notes thereto included
elsewhere herein. The consolidated statements of operations data set forth
below with respect to the years ended September 30, 1995, 1994 and 1993 and the
consolidated balance sheet data at September 30, 1995 and 1994 are derived from,
and are qualified by reference to, the audited consolidated financial statements
included elsewhere herein and should be read in conjunction with those financial
statements and the notes thereto. The consolidated statements of operations
data for the year ended September 30, 1992 and 1991 and the consolidated balance
sheet data as of September 30, 1993, 1992 and 1991 are derived from audited
consolidated financial statements not included herein.
-13-
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, (1)
-------------------------------------------------------------
1995 1994 (2) 1993 (2) 1992 (2) 1991 (2)
---- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales $308,133 $324,805 $337,373 $284,598 $199,033
Cost of sales 302,937 276,948 254,321 181,198 130,918
---------- --------- --------- --------- ---------
Gross profit 5,196 47,857 83,052 103,400 68,115
---------- --------- --------- --------- ---------
Operating expenses:
Research and development 19,310 33,956 33,503 21,093 14,576
Selling, general and administrative 90,068 94,731 84,132 61,824 44,054
---------- --------- --------- --------- ---------
Total operating expenses 109,378 128,687 117,635 82,917 58,630
---------- --------- --------- --------- ---------
Income (loss) from operations (104,182) (80,830) (34,583) 20,483 9,485
Interest (expense) income, net (6,068) (1,245) 70 878 731
Litigation settlement (12,422) -- -- -- --
---------- --------- --------- --------- ---------
Income (loss) before income taxes and
cumulative effect of a change in
accounting principle (122,672) (82,075) (34,513) 21,361 10,216
Provision (benefit) for income taxes 9,070 (4,600) (13,774) 8,329 4,012
---------- --------- --------- --------- ---------
Income (loss) before cumulative effect of
a change in accounting principle (131,742) (77,475) (20,739) 13,032 6,204
Cumulative effect of a change in method of
accounting for income taxes - - 600 - -
Net income (loss) $(131,742) $(77,475) $(20,139) $ 13,032 $ 6,204
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Net Income (loss) per share:
Income (loss) before cumulative effect of
a change in accounting principle $ (8.75) $ (5.70) $ (1.61) $ 1.04 $ 0.54
Cumulative effect of a change in method
of accounting for income taxes - - 0.05 - -
---------- --------- --------- --------- ---------
Net income (loss) per share $ (8.75) $ (5.70) $ (1.56) $ 1.04 $ 0.54
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Common and common equivalent shares
used in computing net income (loss)
per share 15,049 13,598 12,905 12,485 11,473
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, (1)
------------------------------------------------------------
1995 1994 (2) 1993 (2) 1992 (2) 1991 (2)
---- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (Working capital deficiency) ($59,334) $ 29,856 $ 86,711 $ 84,303 $ 60,748
Total assets 87,878 126,859 172,275 150,658 106,306
Long-term debt---noncurrent portion 1,331 2,857 3,975 1,935 2,707
Shareholder's equity (Net capital deficiency) (57,117) 35,691 98,155 96,631 70,400
- ----------------------------------------
</TABLE>
(1) The Company's fiscal year ends on the Saturday closest to September 30 and
includes 53 weeks in fiscal 1993 and 52 weeks in all other fiscal years
presented. During fiscal 1995, the Company changed its fiscal year end from the
Sunday closest to September 30 to the Saturday closest to September 30 for
operational efficiency purposes. For clarity of presentation, all fiscal
periods in this Form 10-K are reported as ending on a calendar month end.
(2) These periods have been restated to reflect the Merger of Radius and
SuperMac which has been accounted for as a pooling of interests. See Note 10 of
Notes to the Consolidated Financial Statements. The consolidated financial
statements for all periods prior to fiscal 1994 have not been restated to adjust
SuperMac's fiscal year end to that of Radius. Such periods include Radius'
results of operations and balance sheet data on a September 30 fiscal year basis
and SuperMac's on a December 31 calendar year basis.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
RESULTS OF OPERATIONS--ANNUAL PERIODS
The following table sets forth for the years indicated certain operational data
as a percentage of net sales (may not add due to rounding).
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-------------------------------
1995 1994 (1) 1993 (1)
---- -------- --------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 98.3 85.3 75.4
---- ---- ----
Gross profit 1.7 14.7 24.6
Operating expenses:
Research and development 6.3 10.5 9.9
Selling, general, and administrative 29.2 29.2 24.9
---- ---- ----
Total operating expenses 35.5 39.6 34.9
Loss from operations (33.8) (24.9) (10.3)
Interest expense, net (2.0) (0.4) -
Litigation settlement (4.0) -
---- ---- ----
Loss before income taxes (39.8) (25.3) (10.2)
Provision (benefit) for income taxes 2.9 (1.4) (4.1)
---- ---- ----
Loss before cumulative effect of
a change in accounting principle (42.8) (23.9) (6.1)
Cumulative effect of change in method of
accounting for income taxes - - 0.2
---- ---- ----
Net loss (42.8)% (23.9)% (6.0)%
---- ---- ----
---- ---- ----
</TABLE>
(1) These periods have been restated to reflect the Merger of Radius and
SuperMac which has been accounted for as a pooling of interests. See Note 10 of
Notes to the Consolidated Financial Statements. The consolidated financial
statements for all periods prior to fiscal 1994 have not been restated to adjust
SuperMac's fiscal year end to that of Radius. Such periods include Radius'
results of operations and balance sheet data on a September 30 fiscal year basis
and SuperMac's on a December 31 calendar year basis. The operating results for
both the twelve months ended September 30, 1994 and September 30, 1993 include
the restructuring and other charges of $16.6 million recorded by SuperMac in
December 1993.
-15-
<PAGE>
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES. The Company's net sales decreased 5.1% to $308.1 million in fiscal
1995 from $324.8 million in fiscal 1994. Fiscal 1995 net sales were reduced by
approximately $11.4 million due to reserves taken by the Company in anticipation
of future price reductions on a number its graphics cards, MacOS compatible
systems and other products that are designed for Apple's NuBus-based computers
which have been largely replaced by Apple's recently introduced PCI Bus-based
computers.
During the fiscal year, net sales of graphics cards declined substantially due
primarily to reduced demand resulting from Apple's incorporation of built-in
graphics capabilities in its PowerPC based Macintosh systems. Net sales from
displays, accelerator cards and printers also declined during the fiscal year.
These declines were largely offset by sales of MacOS compatible systems which
were first introduced in the 1995 fiscal year and by a substantial increase in
net sales from the Company's color server products.
While net sales from the Company's digital video products increased slightly
during the fiscal year, the Company anticipates lower revenue from this product
line until the introduction of new products now under development.
The Company anticipates significantly lower overall net sales in fiscal 1996 as
a result of the Company's decision to focus its efforts on providing solutions
for high end digital video and graphics customers, discontinue selling mass
market displays and other low value added products, and divest of certain
businesses such as color servers and MacOS compatible systems.
On December 23, 1995, the Company entered into a definitive agreement to sell
its color server business to Splash Technology, Inc., a company in which Radius
will retain a 19.9% equity interest, for approximately $21.9 million. That sale
is anticipated to be completed in January 1996. In addition the Company is now
negotiating to sell its MacOS compatible systems business and does not
anticipate significant net sales from this business during the 1996 fiscal year.
Export sales represented approximately 40.4%, 34.5%, and 32.0% of net sales for
fiscal 1995, 1994 and 1993, respectively. See Note 7 of Notes to Consolidated
Financial Statements. Export sales are subject to the normal risks associated
with doing business in foreign countries such as currency fluctuations, longer
payment cycles, greater difficulties in accounts receivable collection, export
controls and other government regulations and, in some countries, a lesser
degree of intellectual property protection as compared to that provided under
the laws of the United States.
GROSS PROFIT. The Company's gross profit margin including restructuring and
other charges declined to 1.7% in fiscal 1995, compared to 14.7%, in fiscal
1994. The Company's gross profit margin excluding the restructuring and other
charges declined to 16.9% in fiscal 1995, compared to 27.3% in fiscal 1994.
Excluding restructuring and other charges, the Company's gross profit margin
declined primarily due to lower sales of higher margin graphics cards, costs
incurred to process higher than expected product returns resulting from the
consolidation of the Radius and SuperMac product lines and slower than expected
sell through of its Radius Telecast digital video product, significant price
erosion on NuBus based MacOS compatible systems combined with high production
costs for these systems, the sale of end of life products, and increased pricing
pressures. The Company anticipates continued competitive pricing actions
resulting in declining prices in its industry.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses decreased
to $19.3 million (6.3% of net sales) in fiscal 1995 from $34.0 million (10.5% of
net sales) in fiscal 1994. The Company's research and development expenses in
fiscal 1994 included restructuring and other charges of $4.3 million. No
restructuring and other charges were included in research and development
expenses in fiscal 1995.
The decrease in research and development expenses during the fiscal year was
primarily due to the reduction of expenses as a result of the Company's
restructuring following the Merger. The merger-related restructuring resulted
in reduced costs primarily related to headcount, depreciation, and facilities.
While there can be no assurance that the Company's product development efforts
will result in commercially successful products, the Company believes that
development of new products and enhancement of existing products
-16-
<PAGE>
are essential to its continued success, and management intends to continue to
devote substantial resources to research and new product development.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses including restructuring and other charges decreased to
$90.1 million (29.2% of net sales) in fiscal 1995 from $94.7 million (29.2% of
net sales) in fiscal 1994. Selling, general and administrative expenses
excluding restructuring and other charges decreased to $79.2 million (25.7% of
net sales) in fiscal 1995 from $84.0 million (25.9% of net sales) in fiscal
1994.
The decrease in selling, general and administrative expenses during the fiscal
year was primarily due to the reduction of expenses as a result of the Company's
restructuring following the Merger. The merger-related restructuring resulted
in reduced costs primarily related to headcount, depreciation and facilities.
PROVISION FOR INCOME TAXES. The Company's annual combined federal and state
effective income tax rates were approximately (7.4%) (expense) in fiscal 1995
and 6% (benefit) in fiscal 1994. In fiscal 1995, the rate differs from the
combined statutory rate in effect during the period primarily as a result of the
impact of not benefiting the 1995 operating losses and the reversal of existing
deferred tax assets. The fiscal 1994 rate differs from the combined statutory
rate in effect during the period primarily as a result of non-deductible merger
related costs, the one time write-off of purchased research and development
which is not tax deductible and the impact of not benefiting a significant
portion of the 1994 operating loss.
FASB Statement 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. The Company's valuation
allowance reduced the deferred tax asset to the amount realizable. The Company
has provided a full valuation allowance against its net deferred tax assets due
to uncertainties surrounding their realization. Due to the net losses reported
in the prior three years and as a result of the material changes in operations
reported in its 1995 fiscal fourth quarter, predictability of earnings in future
periods is uncertain. The Company will evaluate the realizability of the
deferred tax asset on a quarterly basis.
FISCAL 1994 COMPARED TO FISCAL 1993
NET SALES. The Company's net sales decreased 3.7% to $324.8 million in fiscal
1994 from $337.4 million in fiscal 1993. The Company believes that this decline
in net sales was in part attributable to the customers postponing purchasing
decisions during the fourth quarter while waiting to see which of the Company's
product lines would be supported and which would be discontinued following the
Merger. Sales were flat for the nine months ended June 30, 1994 prior to the
Merger. Net sales of video products and displays increased but this increase
was offset by pricing pressure on graphics cards. Demand was lower than
anticipated for graphics cards due to the introduction of the Power Macintosh by
Apple and the resulting customer uncertainty surrounding the need for graphics
acceleration given the built-in video capabilities of this new product.
GROSS PROFIT. The Company's gross profit margin including the restructuring and
other charges declined to 14.7% in fiscal 1994, compared to 24.6%, in fiscal
1993. The Company's gross profit margin excluding the restructuring charges
declined to 27.3% in fiscal 1994, compared to 31.8% in fiscal 1993. See Note 8
of Notes to Consolidated Financial Statements regarding the restructuring and
other charges for SuperMac in December 1993 and Merger related restructuring and
other charges in September 1994. Excluding the restructuring charges, the
decline in gross margins was due to increased pricing pressures and a change in
the product mix favoring lower margin displays over higher margin graphics
accelerator cards.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
slightly to $34.0 million (10.5% of net sales) in fiscal 1994 from $33.5 million
(9.9% of net sales) in fiscal 1993. The relatively flat absolute dollar
expenditures in research and development activities were due to recording
significant restructuring and other charges related to development project
cancellations, equipment disposal, and severance in fiscal 1994 offset by the
decrease in expenditures in fiscal 1994 as a result of the cancellation of
Radius' efforts to develop a variety of technologies originally intended for a
minicomputer-class server product. Additionally, the research and development
expenses appeared flat due to the SuperMac 1993 restructuring of $2.0 million
for development project cancellations included in both the fiscal 1993 and
fiscal 1994 results of operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $94.7 million (29.2% of net sales) in
fiscal 1994 from $84.1 million (24.9% of net sales) in fiscal 1993. The
increase in
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<PAGE>
absolute dollars was primarily due to increased personnel expense, market
development expenses, restructuring and other charges in fiscal 1994 and the
Company's investment in its information system. The 1993 restructuring and
other charges included the elimination of excess facilities, capital equipment
write-offs, severance payments and the termination of certain contractual
agreements. Restructuring and other charges for fiscal 1994 included the
elimination of duplicative facilities, property and equipment and other assets,
severance payments, as well as transaction fees and costs incidental to the
Merger.
PROVISION FOR INCOME TAXES. The Company's annual combined federal and state
effective income tax rates were approximately 6% in fiscal 1994 and 40% in
fiscal 1993 before the cumulative effect of the change in method of accounting
for income taxes. The fiscal 1994 rate differs from the combined statutory rate
in effect during the period primarily as a result of non-deductible merger
related costs, the one time write-off of purchased research and development
which is not tax deductible and the impact of not benefiting a significant
portion of the 1994 operating loss. The 1993 rate differs from the combined
statutory rate in effect during the period primarily as a result of the
utilization of the research and development tax credit.
RESTRUCTURING, MERGER AND OTHER CHARGES
During fiscal 1993, 1994 and 1995, four restructuring and other charges were
recorded. Radius recorded a $15.5 million restructuring charge during the third
quarter of fiscal 1993 in connection with the implementation of a program
designed to reduce costs and improve operating efficiencies. SuperMac recorded
a $16.6 million restructuring charge during December 1993 in connection with a
program to realign its inventory and facility and personnel resources.
Subsequently, the two companies merged and incurred a restructuring charge of
$43.4 million. In September 1995, Radius recorded $57.9 million restructuring
charge in connection with the Company's efforts to refocus and streamline its
business. A discussion of each of these events follows.
RADIUS JUNE 1993 RESTRUCTURING AND OTHER CHARGES
In June 1993, Radius announced a restructuring program designed to reduce costs
and improve operating efficiencies. The program included, among other things,
the write-down of inventory following Radius' decision to phase out its older
generation of products, lease termination expenses, capital equipment write-
offs, severance payments, and costs associated with the discontinuation of
Radius' minicomputer-class server product. The restructuring program costs of
$15.5 million were recorded during the third quarter of fiscal 1993. These
charges (in thousands) are included in: cost of sales ($10,993); research and
development ($411); and selling, general and administrative expenses ($4,096).
The Company completed this restructuring event by the end of calendar 1994.
There were no material changes in the restructuring plan or in the estimates of
the restructuring costs from the recognition of the charge in June 1993 with the
completion of the restructuring program in December 1994.
SUPERMAC DECEMBER 1993 RESTRUCTURING AND OTHER CHARGES
In December 1993, SuperMac recorded charges of $16.6 million in connection with
a program to adjust inventory levels, eliminate excess facilities, terminate
certain projects and contract arrangements and reduce the number of employees.
The charges (in thousands) are included in: cost of sales ($13,352); research
and development ($2,000); and selling, general and administrative expenses
($1,238). There have been no material changes in the restructuring plan or in
the estimates of the restructuring costs. The Company has $236,000 remaining in
its restructuring reserve related to facility costs, the balance of which is
expected to be eliminated in fiscal 1996. As noted in the Consolidated
Financial Statements, the consolidated results for the Company in both the
twelve months ended September 30, 1994 and the fiscal period ended 1993 include
SuperMac's $16.6 million charge.
RADIUS FISCAL 1994 MERGER RELATED RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of fiscal 1994, the Company recorded charges of $43.4
million in connection with the Merger of Radius and SuperMac. These charges
include the discontinuance of duplicative product lines and related assets;
elimination of duplicative facilities, property and equipment and other assets;
and personnel severance costs as well as transaction fees and costs incidental
to the merger. The charges (in thousands) are included in: net sales ($3,095);
cost of sales ($25,270); research and development ($4,331); and selling, general
and administrative expenses ($10,711). The elements of the total charge as of
September 30, 1995 are as follows (in thousands):
-18-
<PAGE>
<TABLE>
<CAPTION>
Representing
----------------------------------------------
Cash Outlays
------------------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $22,296 $19,200 $ 3,096 $ -
Excess facilities 2,790 400 2,236 154
Revision of the operations business model 9,061 7,078 1,268 715
Employee severance 6,311 - 6,311 -
Merger related costs 2,949 - 2,949 -
------- ------- ------- ------
Total charges $43,407 $26,678 $15,860 $ 869
</TABLE>
The adjustment of inventory levels reflects the discontinuance of duplicative
product lines. The provision for excess facility costs represents the write-off
of leaseholds and sublease costs of Radius' previous headquarters, the
consolidation into one main headquarters and the consolidation of sales offices.
The revision of the operations business model reflects the reorganization of the
combined Company's manufacturing operations to mirror Radius' manufacturing
reorganization in 1993. This reorganization was designed to outsource a number
of functions that previously were performed internally, reduce product costs
through increased efficiencies and lower overhead, and focus the Company on a
limited number of products. Employee severance costs are related to employees
or temporary employees who were released due to the revised business model.
Approximately 250 employees were terminated in connection with the Merger. The
provision for merger related costs is for the costs associated with the Merger
transaction, such as legal, investment banking and accounting fees. The
Company has spent $15.9 million of cash for restructuring through September 30,
1995. The Company expects to have substantially completed the restructuring by
September 1996. During fiscal 1995, approximately $2.1 million of merger
related restructuring reserves were reversed and recorded as an expense
reduction due to changes in estimated requirements.
RADIUS FISCAL 1995 RESTRUCTURING AND OTHER CHARGES
In September 1995, Radius recorded charges of $57.9 million in connection with
the Company's efforts to refocus its business on the color publishing and
multimedia markets. The charges primarily included a writedown of inventory and
other assets. Additionally, it included expenses related to the cancellation of
open purchase orders, excess facilities and severance. The charges (in
thousands) are included in cost of sales ($47,004), and selling, general and
administrative expense ($10,861). The elements of the total charge as of
September 30, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Representing
----------------------------------------------
Cash Outlays
------------------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $ 33,138 $ 32,300 $ - $ 838
Excess facilities 2,004 404 - 1,600
Cancellation fees and asset write-offs 19,061 5,196 - 13,865
Employee severance 3,662 - - 3,662
------- ------- ------- ------
Total charges $ 57,865 $ 37,900 $ - $19,965
</TABLE>
The adjustment of inventory levels reflects the discontinuance of several
product lines. The provision for excess facility costs represent the write-off
of leasehold improvements and the costs associated with anticipated reductions
in facilities. The cancellation fees and asset write-offs reflect the Company's
decision to refocus its efforts on providing solutions for the color publishing
and multimedia markets. Employee severance costs are related to employees or
temporary employees who have been or will be released due to the revised
business model. As of December 15, 1995, approximately 157 positions had been
eliminated in connection with the new business model. The Company had not spent
any cash for this restructuring as of September 30, 1995. As of September 30,
1995, the Company had cash and cash equivalents of $4.8 million. See
"Management's Business Recovery Plans" at Note 1 due to the Consolidated
Financial Statements. The Company expects to have substantially completed the
restructuring by September 1996.
-19-
<PAGE>
BUSINESS DIVESTITURES
COLOR SERVER GROUP
On December 23, 1995, the Company signed a definitive agreement pursuant to
which the Company will sell its Color Server Group ("CSG") to Splash Merger
Company, Inc. (the "Buyer"), a wholly owned subsidiary of Splash Technology
Holdings, Inc. (the "Parent"), a corporation formed by various investment
entities associated with Summit Partners. The Company will receive approximately
$21,945,175 in cash (subject to certain post-closing adjustments) and 4,282
shares of the Parent's 6% Series B Redeemable and Convertible Preferred Stock
(the " Series B Preferred Stock"). The shares of Series B Preferred Stock will
be convertible by the Company at any time into 19.9% of the Parent's common
stock outstanding as of the closing of the transaction. The shares of Series B
Preferred Stock also will be redeemable by the Parent at any time, and will be
subject to mandatory redemption beginning on the sixth anniversary of issuance,
in each case at a redemption price of $1,000 per share plus accrued dividends.
The transaction is expected to close in January 1996. Under the Inventory and
Working Capital Agreement, as recently amended, with IBM Credit Corp., the
Company is required to pay all of the net proceeds of the Color Server Group
transaction to IBM Credit Corp. in order to reduce the Company's outstanding
indebtedness under that agreement.
PORTRAIT DISPLAY LABS
On December 19, 1995, the Company signed a series of agreements with Portrait
Display Labs, Inc. ("PDL"). The agreements assigned the Company's pivoting
technology to PDL and canceled PDL's on-going royalty obligation to the Company
under an existing license agreement in exchange for a one-time cash payment. PDL
also granted the Company a limited license back to the pivoting technology.
Under these agreements, PDL also settled its outstanding receivable to the
Company by paying the Company $500,000 in cash and issuing to the Company
214,286 shares of PDL's Common Stock. See Note 1 to the Consolidated Financial
Statements.
DISPLAY TECHNOLOGIES ELECTROHOME INC.
On December 21, 1995, the Company signed a Business Purchase Agreement and an
Asset Purchase and License Agreement with Display Technologies Electrohome Inc.
("DTE"). Pursuant to the agreements and subject to certain closing conditions,
DTE will purchase Radius' monochrome display monitor business and certain assets
related thereto, for approximately $200,000 in cash and cancellation of $2.5
million of the Company's indebtedness to DTE. In addition, DTE and Radius will
cancel outstanding contracts relating to DTE's manufacture and sale of
monochrome display monitors to Radius.
RESULTS OF OPERATIONS--QUARTERLY PERIODS
The following table sets forth certain unaudited quarterly financial information
for the Company's last eight fiscal quarters (in thousands, except per share
data). The information includes all adjustments (consisting only of normal
recurring adjustments) that management considers necessary for a fair
presentation thereof. The operating results for any quarter are not necessarily
indicative of results for any future period. The Company's fiscal year ends on
the Sunday closest to September 30.
-20-
<PAGE>
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994 (1)
--------------------------------------- -------------------------------------
9/30/95 6/30/95 3/31/95 12/30/95 9/30/94 6/30/94 3/31/94 12/31/93
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $57,126 $87,325 $84,447 79,235 $66,940 $86,673 $83,180 $88,013
Cost of sales 118,055 65,211 62,913 56,758 86,682 59,931 57,279 73,057
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit (loss) (60,929) 22,114 21,534 22,477 (19,742) 26,742 25,901 14,956
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Research and development 5,530 4,990 4,672 4,118 13,119 5,645 6,445 8,648
Selling, general and administrative 41,343 18,442 14,401 15,882 35,190 19,232 19,003 21,405
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses 46,873 23,432 19,073 20,000 48,309 24,877 25,448 30,053
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from operations (107,802) (1,318) 2,461 2,477 (68,051) 1,865 453 (15,097)
Interest (expense) income, net (1,463) (1,531) (2,154) (920) (739) (223) (121) (159)
Litigation settlement - - - (12,422) - - - -
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes (109,265) (2,849) 307 (10,865) (68,790) 1,642 332 (15,256)
Provision (benefit) for income taxes 8,620 263 31 156 209 580 688 (6,077)
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) $(117,885) $(3,112) $ 276 $(11,021) $(68,999) $1,062 $ (356) $(9,179)
--------- -------- -------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) per share $ (6.92) $ (0.21) $0.02 $ (0.78) $ (4.99) $ 0.08 $(0.03) $ (0.69)
--------- -------- -------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- -------- -------- --------
Common and common equivalent
shares used in computing
net income (loss) per share 17,039 14,791 14,556 14,215 13,828 14,042 13,496 13,370
--------- -------- -------- -------- -------- -------- -------- --------
--------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
(1) These periods have been restated to reflect the Merger of Radius and
SuperMac which has been accounted for as a pooling of interests. See Note 10 of
Notes to the Consolidated Financial Statements. The consolidated financial
statements for all periods prior to fiscal 1994 have not been restated to adjust
SuperMac's fiscal year end to that of Radius. Such periods include Radius'
results of operations and balance sheet data on a September 30 fiscal year basis
and SuperMac's on a December 31 calendar year basis. Therefore, results for the
quarter ended September 30, 1993 shown above include a $16.6 million charge
recorded by SuperMac in December 1993. Additionally, the results for the
quarter ended December 31, 1993 reflect this same $16.6 million charge recorded
by SuperMac in December 1993.
The Company's operating results are subject to quarterly fluctuations as a
result of a number of factors, including: the sales rate and mix of Apple
computers; the introduction of new products by Apple, the Company or its
competitors; the timing of sales and marketing expenses by the Company; the
timing of business cycles in the United States and worldwide; the availability
and cost of key components; the Company's ability to develop innovative
products; the Company's product and customer mix; and the level of competition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased approximately $11.2 million
during fiscal 1995 to approximately $4.8 million at September 30, 1995, as
compared with the fiscal 1994 ending balance of cash and cash equivalents of
$16.0 million. Approximately $1.6 million of the $4.8 million of cash and cash
equivalents available at September 30, 1995 was restricted under various letters
of credit. Capital expenditures were $1.9 million in fiscal 1995 and $3.5
million in fiscal 1994.
The decrease in the Company's cash and cash equivalents during fiscal 1995 was
primarily attributable to expenditures made in connection with the development
and introduction of the Company's MacOS compatible systems.
The Company completed a private placement during the third quarter of the 1995
fiscal year, the proceeds of which allowed the Company to build inventory of
MacOS-compatible systems components and reduce other vendor payables. In the
private placement, the Company sold 2,509,319 shares of its Common Stock
resulting in net proceeds of approximately $21.4 million.
-21-
<PAGE>
At September 30, 1995, the Company's principal sources of liquidity included
approximately $30.0 million in inventory and working capital financing under
an agreement with IBM Credit Corporation (the "ICC Agreement") together
with an additional $20.0 million provided by IBM Credit Corp. under the ICC
Agreement to finance the manufacturing of the Company's MacOS compatible
products, all of which was fully utilized.
In addition, the Company has a $5.0 million credit arrangement with Silicon
Valley Bank ("SVB") which was partially utilized as of that date. Additionally,
the Company's Japanese subsidiary has a revolving line of credit with a bank in
Japan under which $3.1 million has been utilized as of September 30, 1995.
As of September 30, 1995, the Company was not in compliance with all of its
contractual obligations and financial covenants under the ICC Agreement;
however, IBM Credit Corp. has waived such defaults pursuant to an amendment
to the ICC Agreement executed in December 1995 (the "ICC Amendment"). The
ICC Amendment, among other things, also provides that until March 31, 1996
IBM Credit Corp. will extend advances to the Company in an amount up to 90%
of the Company's collections and fund the Company's payroll in the event that
collections are insufficient to permit the advances needed for this purpose.
Such advances and payroll funding, however, may be suspended by IBM Credit
Corp. (i) immediately following a default of the ICC Amendment, and (ii)
following thirty (30) days notice in the event of any default of the ICC
Agreement.
As of September 30, 1995, the Company was not in compliance with all of its
contractual obligations and financial covenants under its credit arrangement
with SVB. As of December 15, 1995 approximately $1,200,000 was outstanding
under this credit arrangement, all of which the Company anticipates paying SVB
during the first calendar quarter of 1996.
Recently, the Company's limited cash resources have restricted the Company's
ability to purchase inventory which in turn has limited its ability to
manufacture and sell products and has resulted in additional costs for expedited
deliveries. The Company also is delinquent in its accounts payables as payments
to vendors are not being made in accordance with vendor terms. The adverse
effect on the Company's results of operations due to its limited cash resources
can be expected to continue until such time as the Company is able to return to
profitability, or generate additional cash from other sources. There can be no
assurance that the Company will be able to do so.
Additional funds will be needed to finance the Company's development plans and
for other purposes, and the Company is now investigating possible financing
opportunities. There can be no assurance that additional financing will be
available when needed or, if available, that the terms of such financing will
not adversely affect the Company's results of operations.
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS OF OPERATIONS
A number of uncertainties exist that could affect the Company's future operating
results, including, without limitation, the following:
CONTINUING OPERATING LOSSES
The Company experienced net operating losses in the fiscal years ended September
30, 1993, 1994 and 1995. The Company's ability to achieve and sustain
profitable operations will depend upon a number of factors, including the
Company's ability to control costs; to develop innovative and cost-competitive
new products and to bring those products to market in a timely manner; the rate
and mix of Apple computers and related products sold; competitive factors such
as new product introductions, product enhancements and aggressive marketing and
pricing practices; general economic conditions; and other factors. The Company
has faced and expects to continue to face increased competition in graphic cards
as a result of Apple's transition of its product line to the PCI Bus. In
addition, the Company anticipates significantly lower revenue and gross profit
from its digital video products primarily due to lower than anticipated sell
trough rates for Radius Telecast. For these and other reasons, there can be no
assurance that the Company will be able to achieve profitability in the near
term.
-22-
<PAGE>
FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced substantial fluctuations in operating results. The
Company's customers generally order on an as-needed basis, and the Company has
historically operated with relatively small backlogs. Quarterly sales and
operating results depend heavily on the volume and timing of bookings received
during the quarter, which are difficult to forecast. A substantial portion of
the Company's revenues are derived from sales made late in each quarter, which
increases the difficulty in forecasting sales accurately. Recently, shortages
of available cash have delayed the Company's receipt of products from suppliers
and increased shipping and other costs. The Company recognizes sales upon
shipment of product, and allowances are recorded for estimated noncollectable
amounts, returns, credits and similar costs, including product warranties and
price protection. Due to the inherent uncertainty of such estimates, there can
be no assurance that the Company's forecasts regarding bookings, collections,
rates of return, credits and related matters will be accurate. A significant
portion of the operating expenses of the Company are relatively fixed in nature,
and planned expenditures are based primarily on sales forecasts which, as
indicated above, are uncertain. Any inability on the part of the Company to
adjust spending quickly enough to compensate for any failure to meet sales
forecasts or to receive anticipated collections, or any unexpected increase in
product returns or other costs, could also have an adverse impact on the
Company's operating results.
DEPENDENCE ON AND COMPETITION WITH APPLE
Historically, substantially all of the Company's products have been designed for
and sold to users of Apple personal computers, and it is expected that sales of
products for such computers will continue to represent substantially all of the
net sales of the Company for the foreseeable future. The Company's operating
results would be adversely affected if Apple should lose market share, if
Macintosh sales were to decline or if other developments were to adversely
affect Apple's business. As software applications for the color publishing and
multimedia markets become more available on platforms other than Macintosh, it
is likely that these other platforms will continue to gain acceptance in these
markets. For example, recently introduced versions of the Windows operating
environment support high performance graphics and video applications similar to
those offered on the Macintosh. There is a risk that this trend will reduce the
support given to Macintosh products by third party developers and could
substantially reduce demand for Macintosh products and peripherals over the long
term.
A number of the Company's products compete with products marketed by Apple. As
a competitor of the Company, Apple could in the future take steps to hinder the
Company's development of compatible products and slow sales of the Company's
products. The Company's business is based in part on supplying products that
meet the needs of high-end customers that are not fully met by Apple's products.
As Apple improves its products or bundles additional hardware or software into
its computers, it reduces the market for Radius products that provide those
capabilities. For example, the Company believes that the on-board performance
capabilities included in Macintosh Power PC products have reduced and continue
to reduce overall sales for the Company's graphics cards. In the past, the
Company has developed new products as Apple's progress has rendered existing
Company products obsolete, but there can be no assurance that the Company will
continue to develop successful new products on a timely basis in the future. In
order to develop products for the Macintosh on a timely basis, the Company
depends upon access to advance information concerning new Macintosh products. A
decision by Apple to cease sharing advance product information with the Company
would adversely affect the Company's business.
New products anticipated from and introduced by Apple could cause customers
to defer or alter buying decisions due to uncertainty in the marketplace, as
well as presenting additional direct competition for the Company. For
example, the Company believes that Apple's transition during 1994 to Power PC
products caused delays and uncertainties in the market place and had the
effect of reducing demand for the Company's products. In addition, sales of
the Company's products have been adversely affected by Apple's revamping of
its entire product line from NuBus-based to PCI Bus-based computers. In the
past, transitions in Apple's products have been accompanied by shortages in
those products and in key components for them, leading to a slowdown in sales
of those products and in the development and sale by the Company of
compatible products. In addition, it is possible that the introduction of
new Apple products with improved performance capabilities may create
uncertainties in the market concerning the need for the performance
enhancements provided by the Company's products and could reduce demand for
such products.
-23-
<PAGE>
COMPETITION
The markets for the Company's products are highly competitive, and the Company
expects competition to intensify. Many of the Company's current and prospective
competitors have significantly greater financial, technical, manufacturing and
marketing resources than the Company. The Company believes that its ability to
compete will depend on a number of factors, including the success and timing of
new product developments by the Company and its competitors, product
performance, price and quality, breadth of distribution and customer support.
There can be no assurance that the Company will be able to compete successfully
with respect to these factors. In addition, the introduction of lower priced
competitive products could result in price reductions that would adversely
affect the Company's results of operations.
DEPENDENCE ON SUPPLIERS
The Company outsources the manufacturing and assembly of its products to third
party suppliers. Although the Company uses a number of manufacturer/assemblers,
each of its products is manufactured and assembled by a single supplier. The
failure of a supplier to ship the quantities of a product ordered by the Company
could cause a material disruption in the Company's sales of that product. In
the past, the Company has at times experienced substantial delays in its ability
to fill customer orders for displays and other products, due to the inability of
certain suppliers to meet their volume and schedule requirements and, recently,
due to the Company's shortages in available cash. Due to recent shortages in
cash resources and because the Company seeks to manage its use of working
capital by, among other things, limiting the backlog of inventory it purchases,
the Company is particularly vulnerable to delays in shipments from suppliers.
Such delays can cause fluctuations in the Company's short term results and
contribute to order cancellations.
The Company is also dependent on sole or limited source suppliers for certain
key components used in its products, including certain digital to analog
converters, digital video chips, and other products. Certain other
semiconductor components and molded plastic parts are also purchased from sole
or limited source suppliers. The Company purchases these sole or limited source
components primarily pursuant to purchase orders placed from time to time in the
ordinary course of business and has no guaranteed supply arrangements with sole
or limited source suppliers. The Company expects that these suppliers will
continue to meet its requirements for the components, but there can be no
assurance that they will do so. The introduction of new products presents
additional difficulties in obtaining timely shipments from suppliers.
Additional time may be needed to identify and qualify suppliers of the new
products. Also, the Company has experienced delays in achieving volume
production of new products due to the time required for suppliers to build their
manufacturing capacity. An extended interruption in the supply of any of the
components for the Company's products, regardless of the cause, could have an
adverse impact on the Company's results of operations. The Company's products
also incorporate components, such as VRAMs, DRAMs and ASICs that are available
from multiple sources but have been subject to substantial fluctuations in
availability and price. Since a substantial portion of the total material cost
of the Company's products is represented by these components, significant
fluctuations in their price and availability could affect its results of
operations.
TECHNOLOGICAL CHANGE; CONTINUING NEED TO DEVELOP NEW PRODUCTS
The personal computer industry in general, and the color publishing and video
applications within the industry, are characterized by rapidly changing
technology, often resulting in short product life cycles and rapid price
declines. The Company believes that its success will be highly dependent on its
ability to develop innovative and cost-competitive new products and to bring
them to the marketplace in a timely manner. Should the Company fail to
introduce new products on a timely basis, the Company's operating results could
be adversely affected. Technological innovation is particularly important for
the Company, since its business is based on its ability to provide functionality
and features not included in Apple's products. As Apple introduces new products
with increased functionality and features, the Company's business will be
adversely affected unless it develops new products that provide advantages over
Apple's latest offerings. Continued reduction in the available cash resources
of the Company could result in the interruption or cancellation of research and
product development efforts.
The Company anticipates that the video editing industry will follow the pattern
of the professional publishing industry in which desktop publishing products,
including those produced by Radius, replaced more expensive, proprietary
products, and the Company also anticipates that this evolution will lead to a
significant increase in the purchase and use of video editing products. There
is a risk that this evolution will not occur in the video editing industry as
expected by the Company, or that it will occur at a slower pace than
anticipated.
-24-
<PAGE>
The introduction of new products is inherently subject to risks of delay.
Should the Company fail to introduce new products on a timely basis, the
operating results of the Company could be adversely affected. The introduction
of new products and the phasing out of older products will require the Company
to carefully manage its inventory to avoid inventory obsolescence and may
require increases in inventory reserves. The long lead times -- as much as
three to five months -- associated with the procurement of certain components
(principally displays and ASICs) exposes the Company to greater risk in
forecasting the demand for new products. There can be no assurance that the
Company's forecasts regarding new product demand and its estimates of
appropriate inventory levels will be accurate. Moreover, no assurance can be
given that the Company will be able to cause all of its new products to be
manufactured at acceptable manufacturing yields or that the Company will obtain
market acceptance for these products.
DISTRIBUTION
The Company's primary means of distribution is through a limited number of
third-party distributors and master resellers. As a result, the Company's
business and financial results are highly dependent on the amount of the
Company's products that is ordered by these distributors and resellers. Such
orders are in turn dependent upon the continued viability and financial
condition of these distributors and resellers as well as on their ability to
resell such products and maintain appropriate inventory levels. Due in part to
the historical volatility of the personal computer industry, certain of the
Company's resellers have from time to time experienced declining profit margins,
cash flow shortages and other financial difficulties. The future growth and
success of the Company will continue to depend in large part upon its reseller
channels. If its resellers were to experience financial difficulties, the
Company's results of operations could be adversely affected.
INTERNATIONAL SALES
The Company's international sales are primarily made through distributors and
the Company's subsidiary in Japan. The Company expects that international sales
will represent a significant portion of its net sales and that it will be
subject to the normal risks of international sales such as currency
fluctuations, longer payment cycles, export controls and other governmental
regulations and, in some countries, a lesser degree of intellectual property
protection as compared to that provided under the laws of the United States. In
addition, fluctuations in exchange rates could affect demand for the Company's
products. If for any reason exchange or price controls or other restrictions on
foreign currencies are imposed, the Company's business and operating results
could be materially adversely affected.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of its key management, marketing, product development and
operational personnel and the Company's ability to retain and continue to
attract highly skilled personnel. Competition for employees in the computer
industry is intense, and there can be no assurance that the Company will be
able to attract and retain qualified employees. The Company has recently made a
number of management changes, including the appointment of a new Chief Financial
Officer. If the Company continues to experience financial difficulties, it may
become increasingly difficult for it to hire new employees and retain current
employees. The Company does not carry any key person life insurance with
respect to any of its personnel.
DEPENDENCE ON PROPRIETARY RIGHTS
The Company relies on a combination of patent, copyright, trademark and trade
secret protection, nondisclosure agreements and licensing arrangements to
establish and protect its proprietary rights. The Company has a number of
patents and patent applications and intends to file additional patent
applications as it considers appropriate. There can be no assurance that
patents will issue from any of these pending applications or, if patents do
issue, that any claims allowed will be sufficiently broad to protect the
Company's technology. In addition, there can be no assurance that any patents
that may be issued to the Company will not be challenged, invalidated or
circumvented, or that any rights granted thereunder would provide proprietary
protection to the Company. The Company has a number of trademarks and trademark
applications. There can be no assurance that litigation with respect to
trademarks will not result from the Company's use of registered or common law
marks, or that, if litigation against the Company were successful, any resulting
loss of the right to use a trademark would not reduce sales of the Company's
products in addition to the possibility of a significant damages award.
Although, the Company intends to defend its proprietary rights, policing
unauthorized use of proprietary technology or products is difficult, and there
can be no assurance that the Company's efforts will be successful. The laws of
certain foreign countries may not protect the proprietary rights of the Company
to the same extent as do the laws of the United States.
-25-
<PAGE>
The Company has received, and may receive in the future, communications
asserting that its products infringe the proprietary rights of third parties,
and the Company is engaged and has been engaged in litigation alleging that the
Company's products infringe others' patent rights. As a result of such claims
or litigation, it may become necessary or desirable in the future for the
Company to obtain licenses relating to one or more of its products or relating
to current or future technologies, and there can be no assurance that it would
be able to do so on commercially reasonable terms.
VOLATILITY OF STOCK PRICE; DILUTION
The price of the Company's Common Stock has fluctuated widely in the past.
Management believes that such fluctuations may have been caused by announcements
of new products, quarterly fluctuations in the results of operations and other
factors, including changes in conditions of the personal computer industry in
general. Stock markets have experienced extreme price volatility in recent
years. This volatility has had a substantial effect on the market prices of
securities issued by the Company and other high technology companies, often for
reasons unrelated to the operating performance of the specific companies. Due
to the factors referred to herein, the dynamic nature of the Company's industry,
general economic conditions and other factors, the Company's future operating
results and stock prices may be subject to significant volatility in the future.
In addition, any change in other operating results could have an immediate and
significant effect on the prices of the Company's Common Stock. Such stock
price volatility for the Common Stock has in the past provoked securities
litigation, and future volatility could provoke litigation in the future that
could divert substantial management resources and have an adverse effect on the
Company's results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The index to the Company's Financial Statements, Financial Schedules, and the
Report of the Independent Auditors appears in Part IV of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
With the exception of the information specifically stated as being incorporated
by reference from the Company's definitive Proxy Statement for its 1995 Annual
Meeting of Shareholders (the "Proxy Statement") in Part III of this Annual
Report on Form 10-K, the Company's Proxy Statement is not to be deemed as filed
as part of this report. The Proxy Statement will be filed with the Securities
and Exchange Commission within 120 days of the Company's fiscal year end.
-26-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information concerning the Company's directors required by Item 10 is
incorporated by reference herein to section entitled "Proposal No. 1 - Election
of Directors" of the Proxy Statement The information concerning the Company's
executive officers required by Item 10 is incorporated by reference to Item 4A
in Part 1 hereof entitled "Executive Officers of Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to the
sections entitled "Executive Compensation" and "Proposal No. 1 - Election of
Directors--Compensation of Directors" of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to the
section entitled "Certain Transactions" of the Proxy Statement.
-27-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS. The Company's financial statements filed
herewith are as follows:
Page
----
Report of Ernst & Young LLP, Independent Auditors 35
Consolidated Balance Sheets at September 30, 1995 and 1994 36
Consolidated Statements of Operations for the Years Ended
September 30, 1995, 1994 and 1993 37
Consolidated Statements of Shareholders' Equity for the Years
Ended September 30, 1995, 1994, and 1993 38
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1995, 1994, and 1993 39
Notes to Consolidated Financial Statements 40
(a)(2) FINANCIAL STATEMENT SCHEDULES. The Company's financial statement
schedule filed herewith is as follows: Page
----
Schedule II: Valuation and Qualifying Accounts 54
All other financial statement schedules are omitted because the
information called for is not present in amounts sufficient to require
submission of the schedules or because the information required is
shown either in the financial statements or the notes thereto.
-28-
<PAGE>
(a) (3) EXHIBITS.
Exhibit
Number Title
------ -----
2.01 Agreement and Plan of Reorganization dated May 20, 1994
between Radius Inc. and SuperMac Technology, Inc. (9)
2.02 Modification Agreement dated July 21, 1994 to Agreement
and Plan of Reorganization between Radius Inc. and
SuperMac Technology, Inc. (9)
2.03 Agreement of Merger dated August 31, 1994 between Radius
Acquisition Corp. and SuperMac Technology, Inc.
2.04 Certificate of Ownership and Merger of SuperMac
Technologies, Inc. into Radius Inc. dated September 7,
1994 and Certificate of Ownership of SuperMac
Technologies, Inc. by Radius Inc. dated September 8,
1994
2.05 Agreement and Plan of Reorganization dated July 19, 1994
between Radius Inc. and VideoFusion, Inc. (12)
2.06 First Amendment to Agreement and Plan of Reorganization
between Radius Inc. and Video Fusion, Inc. dated August
25, 1994
2.07 Second Amendment to Agreement and Plan of Reorganization
between Radius Inc. and VideoFusion, Inc. dated
September 6, 1994.
2.08 Third Amendment to Agreement and Plan of Reorganization
between Radius Inc. and VideoFusion, Inc. dated May 10,
1995
3.01 A Registrant's Sixth Amended and Restated Articles of
Incorporation. (2)
* B Certificate of Amendment of Registrant's Sixth Amended
and Restated Articles of Incorporation.
3.02 Registrant's Bylaws. (4)
4.01 Form of Specimen Certificate for Registrant's Common
Stock. (1)
4.04 * Non-Plan Stock Option Grant to Charles W. Berger. (8)
10.01 * A Registrant's 401(k) Savings and Investment Plan. (6)
* B Amendment to the Registrant's 401(k) Savings and
Investment Plan.
* C Registrant's 401(k) Savings and Investment Plan Loan
Policy
10.02 * Registrant's 1995 Stock Option Plan.
10.03 * Form of Stock Option Agreement and Exercise Request as
currently in effect under 1995 Stock Option Plan.
10.04 * Registrant's 1990 Employee Stock Purchase Plan and
related documents. (3)
10.05 * Registrant's 1994 Directors' Stock Option Plan.
-29-
<PAGE>
Exhibit
Number Title
------ -----
10.07 Form of Indemnity Agreement with Directors. (1)
10.08 A Credit Agreement by and among Radius Inc., the certain
financial institutions, and Silicon Valley Bank, dated
March 20, 1995. (14)
B Credit Agreement by and among Radius Inc., the certain
financial institutions, and International Business
Machines Credit Corporation, dated February 17, 1995.
(14)
C Acknowledgment, Waiver and Amendment to Radius Inc.
Inventory and Working Capital Financing Agreement by and
between Radius Inc. and International Business Machines
Credit Corporation dated December 14, 1995.
10.09 A Lease Agreement by and between Registrant and the
Equitable Life Assurance Society of the United States
dated June 22, 1988, as amended by the Commencement of
Term Agreement dated February 13, 1989 and Amendment No.
One dated July 20, 1989, and related documents (1710
Fortune Drive, San Jose, California offices). (1)
B Second Amendment to Lease dated January 27, 1993
amending Lease Agreement by and between Registrant and
Fortune Drive Partners (successor in interest to the
Equitable Life Assurance Society of the United States)
dated June 22, 1988 (1710 Fortune Drive, San Jose,
California offices). (7)
10.10 Lease Agreement by and between Registrant and Board of
Administration, as Trustee for the Police and Fire
Department Fund, and Board of Administration, as Trustee
for the Federated City Employees Retirement Fund dated
December 11, 1990, and related documents (Milpitas,
California warehouse space). (2)
10.11 Lease Agreement by and between Registrant and South
Bay/Copley Associates III Joint Venture dated May 11,
1992; Sublease by and between Core Industries, Inc. and
Registrant dated May 12, 1992; and related documents
(2040 Fortune Drive, San Jose, California offices). (5)
10.12 A Lease Agreement between SuperMac Technologies, Inc. and
Connecticut General Life Insurance Company dated as of
November 13, 1993 (215 Moffett Park Drive, Sunnyvale,
California offices). (10)
B First Amendment to Lease Agreement between SuperMac
Technologies, Inc. and Connecticut General Life
Insurance Company dated as of May 4, 1993 (215 Moffett
Park Drive, Sunnyvale, California offices).
10.13 Lease Agreement between SuperMac Technologies, Inc. and
RREEF USA Fund-II, Inc. dated as of June 16, 1993
(Borregas Avenue, Sunnyvale, California warehouse
space).
10.14 * Employment Agreement by and between Registrant and
Charles W. Berger dated February 26, 1993 as amended on
September 17, 1993. (11)
10.17 Full Recourse Promissory Note with Charles W. Berger.
(11)
-30-
<PAGE>
Exhibit
Number Title
------ -----
10.18 Full Recourse Promissory Notes with J. Daniel Shaver.
10.19 Full Recourse Promissory Note from Michael A. McConnell.
10.20 * SuperMac Technology, Inc.'s 1988 Stock Option Plan
("Option Plan"). (13)
10.21 * SuperMac Technology, Inc.'s Form of Incentive Stock
Option Agreement under the Option Plan. (13)
10.22 * SuperMac Technology, Inc.'s Form of Supplemental Stock
Option Agreement under the Option Plan. (13)
10.23 * SuperMac Technology, Inc.'s Form of Early Exercise Stock
Purchase Agreement under the Option Plan. (13)
10.24 Distribution Agreement between Radius Inc. and Ingram
Micro, Inc. dated June 5, 1991 as amended on April 1,
1992, May 31, 1995 and July 14, 1995. (Confidential
treatment has been requested with respect to certain
portions of this exhibit). (15)
11.01 Computation of per share earnings
21.01 List of Registrant's subsidiaries
23.01 Consent of Ernst & Young, LLP, Independent Auditors
27 Financial Data Schedules
* Management contracts or compensatory plans required to be filed as an
exhibit to Form 10-K.
(1) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-1 (File No. 33-35769), which became effective on
August 16, 1990.
(2) Incorporated by reference to exhibits to the Company's Report on Form
10-K filed on December 24, 1990.
(3) Incorporated by reference to exhibits to the Company's Report on Form
10-K filed on December 30, 1991.
(4) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 filed on April 29, 1992 (File No. 33-47525).
(5) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on August 12, 1992.
(6) Incorporated by reference to exhibits to the Company's Report on Form
10-K filed on December 28, 1992.
(7) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on August 18, 1993.
(8) Incorporated by reference to exhibits to the Company's Registration
Statement on Form S-8 filed on November 15, 1993 (File No. 33-71636).
(9) Incorporated by reference to exhibits to the Company's Amendment No. 2
(File No. 33-79732) to Form S-4 filed on July 25, 1994.
(10) Incorporated by reference to exhibits to SuperMac's Form S-1 (File No.
33-58158) filed on February 11, 1993.
(11) Incorporated be reference to exhibits to the Company's Report on Form
10-K filed on January 3, 1994.
(12) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on August 17, 1994.
-31-
<PAGE>
(13) Incorporated by reference to exhibits to SuperMac Technology, Inc.'s
Registration Statement on Form S-1, as amended (File No. 33-46800),
which became effective on May 15, 1992.
(14) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on May 10, 1995.
(15) Incorporated by reference to exhibits to the Company's Report on Form
10-Q filed on August 15, 1995.
(b) REPORTS ON FORM 8-K. No report on Form 8-K was filed during the last
quarter of the period covered by this report.
(c) EXHIBITS - See (a) (3) above.
(d) FINANCIAL STATEMENT SCHEDULES - See (a) (2) above.
-32-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
RADIUS INC.
By: /s/ Charles W. Berger
------------------------------
Charles W. Berger
President, Chief Executive
Officer and Director
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Charles W.
Berger and David G. Pine, jointly and severally, his true and attorneys-in-fact,
each with the power of substitution, for him in any and all capacities, to sign
amendments to this Report on Form 10-K, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said attorneys-in-
fact, or his substitute or substitutes, may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
NAME TITLE DATES
PRINCIPAL EXECUTIVE OFFICER:
/s/ Charles W. Berger President, Chief Executive 12/28/95
- ------------------------------------ Officer and Chairman of
Charles W. Berger the Board of Directors
PRINCIPAL FINANCIAL OFFICER:
/s/ Dennis J. Dunnigan Chief Financial Officer 12/28/95
- ------------------------------------
Dennis J. Dunnigan
CHIEF ACCOUNTING OFFICER:
/s/ Cherrie L. Jurado Controller 12/28/95
- ------------------------------------
Cherrie L. Jurado
DIRECTORS:
/s/ Michael D. Boich Director 12/28/95
- ------------------------------------
Michael D. Boich
/s/ Michael A. McConnell Director 12/28/95
- ------------------------------------
Michael A. McConnell
-33-
<PAGE>
/s/ Regis McKenna Director 12/28/95
- ------------------------------------
Regis McKenna
/s/ David B. Pratt Director 12/28/95
- ------------------------------------
David B. Pratt
-34-
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
RADIUS INC.
We have audited the accompanying consolidated balance sheets of Radius Inc. as
of September 30, 1995 and 1994, and the related consolidated statements of
operations, shareholders' equity (net capital deficiency) and cash flows for
each of the three years in the period ended September 30, 1995. Our audits also
included the financial statement schedule listed in the Index at Item 14 (a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respect, the consolidated financial position of Radius
Inc. at September 30, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
that Radius Inc. will continue as a going concern. As more fully described in
Note 1, the Company has incurred recurring operating losses, and has a
deficiency in assets and working capital. In addition the Company has not
complied with certain covenants of loan agreements with its lenders. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. (Management's plans in regard to these matters are also
described in Note 1.) The financial statements do not include any adjustment to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
As discussed in Note 1 to the Consolidated Financial Statements, in 1993 the
Company changed its method of accounting for income taxes.
Palo Alto, California
December 8, 1995
except for Note 11, as to which the
date is December 27, 1995
-35-
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 (in thousands)
1995 1994
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,760 $ 15,997
Accounts receivable, net of allowance for doubtful accounts
of $8,502 in 1995 and $2,548 in 1994 61,644 62,145
Inventories 15,071 21,069
Prepaid expenses and other current assets 2,336 1,473
Income tax receivable 519 9,083
Deferred income taxes - 8,400
-------- --------
Total current assets 84,330 118,167
Property and equipment, net 3,031 7,728
Deposits and other assets 517 964
-------- --------
$ 87,878 $126,859
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Current liabilities:
Accounts payable $ 73,098 $ 39,255
Accrued payroll and related expenses 5,815 4,024
Accrued warranty costs 3,170 2,255
Other accrued liabilities 11,920 6,650
Accrued income taxes 1,665 1,237
Accrued restructuring and other charges 17,013 15,148
Short-term borrowings 29,489 18,095
Obligations under capital leases - current portion 1,494 1,647
-------- --------
Total current liabilities 143,664 88,311
Obligations under capital leases-noncurrent portion 1,331 2,857
Commitments and contingencies
Shareholders' equity: (Net capital deficiency)
Convertible preferred stock, no par value, 1,000 shares
authorized; none issued and outstanding
Common stock, no par value; 50,000 shares authorized;
issued and outstanding--17,143 shares in 1995 and
14,046 shares in 1994 113,791 87,017
Common stock to be issued 12,022 -
Accumulated deficit (182,993) (51,251)
Accumulated translation adjustment 63 (75)
-------- --------
Total shareholders' equity (Net capital deficiency) (57,117) 35,691
-------- --------
$87,878 $126,859
-------- --------
-------- --------
</TABLE>
See accompanying notes.
-36-
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For years ended September 30
(in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 (1) 1993 (1)
---- -------- --------
<S> <C> <C> <C>
Net sales $308,133 $324,805 $337,373
Cost of sales 302,937 276,948 254,321
-------- -------- --------
Gross profit 5,196 47,857 83,052
-------- -------- --------
Operating expenses:
Research and development 19,310 33,956 33,503
Selling, general and administrative 90,068 94,731 84,132
-------- -------- --------
Total operating expenses 109,378 128,687 117,635
-------- -------- --------
Loss from operations (104,182) (80,830) (34,583)
Interest and other income (loss) (3,045) (376) 705
Interest expense (3,023) (869) (635)
Litigation settlement (12,422) -- --
-------- -------- --------
Loss before income taxes (122,672) (82,075) (34,513)
Provision (benefit) for income taxes 9,070 (4,600) (13,774)
-------- -------- --------
Loss before cumulative effect of
a change in accounting principle (131,742) (77,475) (20,739)
Cumulative effect of a change in
method of accounting for income
taxes -- -- 600
-------- -------- --------
Net loss $(131,742) $(77,475) $(20,139)
-------- -------- --------
-------- -------- --------
Net loss per share:
Loss before cumulative effect of
a change in accounting principle $ (8.75) $ (5.70) $ (1.61)
Cumulative effect of a change in
method of accounting for income
taxes -- -- 0.05
------ ------ ------
Net loss per share $ (8.75) $(5.70) $(1.56)
------ ------ ------
------ ------ ------
Common and common equivalent shares
used in computing net loss per
share 15,049 13,598 12,905
------- ------ ------
------- ------ ------
</TABLE>
See accompanying notes.
(1) This period has been restated to reflect the 1994 Merger of Radius and
SuperMac which was accounted for as a pooling of interests. See Note 10 of
Notes to the Consolidated Financial Statements. The consolidated financial
statements for fiscal 1993 have not been restated to adjust SuperMac's fiscal
year end to that of Radius. This period includes Radius' results of operations
and balance sheet data on a September 30 fiscal year basis and SuperMac's on a
December 31 calendar year basis. The operating results for both the twelve
months ended September 30, 1994 and September 30, 1993 include the restructuring
and other charges of $16.6 million recorded by SuperMac in December 1993.
-37-
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended September 30, 1995, 1994 and 1993
(in thousands, except share data)
<TABLE>
<CAPTION>
Total
Retained Shareholders
Earnings Accumulated Equity
Common (Accumulated Deferred Translation (Net Capital
Stock Deficit) Compensation Adjustment Deficiency)
------ ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1992 (1) $ 60,203 $ 36,449 $ (58) $ 37 $ 96,631
Issuance of 738 shares of common stock
under the SuperMac public offering 15,401 15,401
Issuance of 517 shares of common stock
under Stock Option Plans 1,324 -- -- -- 1,324
Issuance of 159 shares of common stock
under the Employee Stock Purchase Plans 1,663 -- -- -- 1,663
Tax benefit from stock options exercised 3,358 -- -- -- 3,358
Amortization of deferred compensation -- -- 36 -- 36
Currency translation adjustment -- -- -- (119) (119)
Net loss -- (20,139) -- -- (20,139)
--------- -------- ------- ----- --------
Balance at September 30, 1993 (1) 81,949 16,310 (22) (82) 98,155
Issuance of 350 shares of common stock
under Stock Option Plans 1,800 -- -- -- 1,800
Issuance of 170 shares of common stock
under Employee Stock Purchase Plans 989 -- -- -- 989
Issuance of 206 shares of common stock
pursuant to the acquisition of VideoFusion 1,854 -- -- -- 1,854
Tax benefit from stock options exercised 425 -- -- -- 425
Amortization of deferred compensation -- -- 22 -- 22
Currency translation adjustment -- -- -- 7 7
Net loss -- (77,475) -- -- (77,475)
Elimination of SuperMac net loss
for the three months ended
December 31, 1993 9,914 -- -- 9,914
--------- -------- ------- ----- --------
Balance at September 30, 1994 87,017 (51,251) -- (75) 35,691
Issuance of 214 shares of common stock
under Stock Option Plans 1,254 1,254
Issuance of 162 shares of common stock
under Employee Stock Purchase Plan 1,298 1,298
Issuance of 212 shares pursuant to the
acquisition of VideoFusion 2,857 2,857
Settlement of Litigation-stock to be
issued 12,022 12,022
Issuance of 2,509 shares of common stock
through private placement 21,365 21,365
Currency translation adjustment 138 138
Net Loss (131,742) (131,742)
--------- -------- ------- ----- --------
Balance at September 30, 1995 $125,813 $(182,993) -- $ 63 $(57,117)
--------- --------- ------- ----- --------
--------- --------- ------- ----- --------
</TABLE>
See accompanying notes.
(1) These periods have been restated to reflect the 1994 Merger of Radius and
SuperMac which was accounted for as a pooling of interests. See Note 10 of
Notes to the Consolidated Financial Statements. The consolidated financial
statements for all periods prior to fiscal 1994 have not been restated to adjust
SuperMac's fiscal year end to that of Radius. Such periods include Radius'
results of operations and balance sheet data on a September 30 fiscal year basis
and SuperMac's on a December 31 calendar year basis.
-38-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
For years ended September 30
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993(1)
---- ---- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(131,742) $(77,475) $(20,139)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 4,689 4,542 8,160
Acquired in-process research and development
expenses -- 2,550 --
Elimination of SuperMac net loss for the three
months ended December 31, 1993 -- 9,914 --
Non-cash restructuring and other charges 57,865 40,775 28,981
Common stock to be issued 12,022 -- --
(Increase) decrease in assets:
Accounts receivable (5,471) (20,171) (7,543)
Allowance for doubtful accounts 5,954 426 297
Inventories (27,140) (1,058) (5,633)
Prepaid expenses and other current assets (862) 1,739 15
Income tax receivable 8,564 468 (9,551)
Deferred income taxes 8,400 11,248 (11,322)
Increase (decrease) in liabilities:
Accounts payable 33,843 3,470 2,570
Accrued payroll and related expenses (1,871) (1,441) 1,014
Accrued warranty costs 915 (1,584) 438
Other accrued liabilities 5,270 (4,039) 2,171
Accrued restructuring and other charges (13,601) (6,117) --
Accrued income taxes 428 (1,534) 4,585
--------- --------- ---------
Total adjustments 89,005 39,188 14,182
--------- --------- ---------
Net cash used in operating activities (42,737) (38,287) (5,957)
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (1,894) (3,460) (7,739)
Deposits and other assets (238) 71 --
Purchase of short-term investments -- (2,002) (31,914)
Proceeds from sale of short-term investments -- 18,395 35,938
--------- --------- ---------
Net cash provided by (used in) investing
activities (2,132) 13,004 (3,715)
--------- --------- ---------
Cash flows from financing activities:
Issuance of short-term borrowings, net 11,394 15,275 1,158
Issuance of common stock 23,917 3,214 18,388
Principal payments of long-term debt -- (43) (1,388)
Principal payments under capital leases (1,679) (1,179) (1,140)
--------- --------- ---------
Net cash provided by financing activities 33,632 17,267 17,018
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents (11,237) (8,016) 7,346
Cash and cash equivalents, beginning of period 15,997 24,013 16,667
--------- --------- ---------
Cash and cash equivalents, end of period $ 4,760 $ 15,997 $ 24,013
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
(1) This period has been restated to reflect the 1994 Merger of Radius and
SuperMac which was accounted for as a pooling of interests. See Note 10 of
Notes to the Consolidated Financial Statements. The consolidated financial
statements for fiscal 1993 have not been restated to adjust SuperMac's fiscal
year end to that of Radius. This period includes Radius' results of operations
and balance sheet data on a September 30 fiscal year basis and SuperMac's on a
December 31 calendar year basis.
-39-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE ONE. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Radius Inc.
("Radius") and its wholly owned subsidiaries after elimination of
significant intercompany transactions and balances.
Radius and SuperMac Technologies, Inc. ("SuperMac") merged into the
combined company (the "Company") effective August 31, 1994 (the "Merger"),
which was accounted for as a pooling of interests. The consolidated
financial statements for fiscal 1993 have not been restated to adjust
SuperMac's fiscal year end to that of Radius. This period includes Radius'
results of operations and balance sheet data on a September 30 fiscal year
basis and SuperMac's on a December 31 calendar year basis.
FINANCIAL STATEMENTS ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Such estimates include the level of allowance for
potentially uncollectible receivables and sales returns; inventory reserves
for obsolete, slow-moving, or non-salable inventory; and estimated cost for
installation, warranty and other customer support obligations. Actual
results could differ from these estimates.
MANAGEMENT'S BUSINESS RECOVERY PLANS
As shown in the accompanying consolidated financial statements, the Company
has incurred recurring operating losses, and has a deficiency in assets and
working capital. In addition, as of September 30, 1995, the Company was not
in compliance with all of its contractual obligations and financial
covenants under its credit agreements. The Company also is delinquent in
its accounts payables as payments to vendors are not being made in
accordance with vendor terms.
The Company's relatively limited cash resources have restricted the
Company's ability to purchase inventory which in turn has limited its
ability to manufacture and sell products and has resulted in additional
costs for expedited deliveries. The adverse effect on the Company's results
of operations due to its limited cash resources can be expected to continue
until such time as the Company is able to return to profitability, or
generate additional cash from other sources.
These conditions raise concerns about the Company's ability to continue
operations as an ongoing concern. Management has implemented, or has
developed plans to implement, a number of actions to address these
conditions including: refocusing its efforts on providing solutions for
high end digital video and graphics customers; discontinuing sales of mass
market and other low value added products; divesting its color server and
monochrome display businesses and exploring opportunities for the
divestiture of its MacOS compatible systems products and other product
lines; significantly reducing expenses and headcount; subleasing all or a
portion of its current facility given its reduced occupancy requirements;
and investigating various strategic partnering opportunities.
Additional funds will be needed to finance the Company's development plans
and for other purposes, and the Company is now investigating possible
financing opportunities. There can be no assurance that additional
financing will be available when needed or, if available, that the terms of
such financing will not adversely affect the Company's results of
operations.
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to September 30 and
includes 53 weeks in fiscal 1993 and 52 weeks in all other fiscal years
presented. During fiscal 1995, the Company changed its fiscal year end
from the Sunday closest to September 30 to the Saturday closest to
September 30 for operational efficiency
-40-
<PAGE>
purposes. For clarity of presentation, all fiscal periods in this Form 10-K
are reported as ending on a calendar month end.
FOREIGN CURRENCY TRANSLATION
The Company translates the assets and liabilities of its foreign
subsidiaries into dollars at the rates of exchange in effect at the end of
the period and translates revenues and expenses using rates in effect
during the period. Gains and losses from these translations are
accumulated as a separate component of shareholders' equity. Foreign
currency transaction gains or losses, which are included in the results of
operations, are not material.
INVENTORIES
Inventories are stated at the lower of cost or market. The Company reviews
the levels of its inventory in light of current and forecasted demand to
identify and provide reserve for obsolete, slow-moving, or non-salable
inventory. Cost is determined using standard costs that approximate cost on
a first-in, first-out basis. Inventories consist of the following (in
thousands):
<TABLE>
<CAPTION>
September 30 1995 1994
---- ----
<S> <C> <C>
Raw materials $1,559 $4,515
Work in process 2,258 6,852
Finished goods 11,254 9,702
------- --------
$15,071 $ 21,069
------- --------
------- --------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consists of the following
(in thousands):
<TABLE>
<CAPTION>
September 30 1995 1994
---- ----
<S> <C> <C>
Computer equipment $17,429 $18,007
Machinery and equipment 12,335 14,184
Furniture and fixtures 6,023 5,562
Leasehold improvements 1,084 1,683
------- --------
36,871 39,436
------- --------
------- --------
Less accumulated depreciation
and amortization (33,840) (31,708)
------- --------
$3,031 $7,728
------- --------
------- --------
</TABLE>
Depreciation has been provided for using the straight-line method over
estimated useful lives of three to five years. Equipment under capital
leases and leasehold improvements are being amortized on the straight-line
method over six years or the remaining lease term, whichever is shorter.
LONG-LIVED ASSETS
In 1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." SFAS 121 requires recognition of impairment of long-lived assets in
the event the net book value of such assets exceeds the future undiscounted
cash flows attributable to such assets. SFAS 121 is effective for fiscal
years beginning after December 15, 1995. Adoption of SFAS 121 is not
expected to have a material impact on the Company's financial position or
results of operations.
REVENUE RECOGNITION
Revenue is recognized when products are shipped. Sales to certain
resellers are subject to agreements allowing certain rights of return and
price protection on unsold merchandise held by these resellers. The
Company provides for estimated returns at the time of shipment and for
price protection following price declines.
-41-
<PAGE>
WARRANTY EXPENSE
The Company provides at the time of sale for the estimated cost to repair
or replace products under warranty. The warranty period commences on the
end user date of purcahse and is normally one year for displays and digital
video products and for the life of the product for graphics cards.
INCOME TAXES
Effective October 1, 1992, the Company adopted FASB Statement 109,
"Accounting for Income Taxes." Under Statement 109, the liability method
is used in accounting for income taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. Prior to the adoption of
Statement 109, income tax expense was determined using the liability method
prescribed by Statement 96, which is superseded by Statement 109. Among
other changes, Statement 109 changes the recognition and measurement
criteria for deferred tax assets included in Statement 96.
As permitted by Statement 109, the Company has elected not to restate the
financial statements of any prior years. The cumulative effect of the
change in method of accounting for income taxes decreased the net loss by
$600,000 or $0.05 per share in fiscal 1993 on a combined basis.
LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity from
date of purchase of three months or less to be cash equivalents;
investments with maturities between three and twelve months are considered
to be short-term investments. Cash equivalents are carried at cost which
approximates market. There were no short-term investments as of September
30, 1995 or 1994. Approximately $1.6 million of the $4.8 million of cash
and cash equivalents available at September 30, 1995 was restricted under
various letters of credit.
OFF BALANCE-SHEET RISK AND CONCENTRATION OF CREDIT RISK
The Company sells its products to direct computer resellers in the United
States and to distributors in various foreign countries. The Company
performs on-going credit evaluations of its customers and generally does
not require collateral. The Company maintains reserves for potential
credit losses.
The Company also hedges substantially all of its trade accounts receivable
denominated in foreign currency through the use of foreign currency forward
exchange contracts based on firm commitments. Gains and losses associated
with currency rate changes on forward contracts are recognized in the
consolidated statements of operations and were not material. At September
30, 1995, the Company had forward contracts to sell three different foreign
currencies which totaled the equivalent of approximately $11.1 million and
mature between October 1995 and November 1995. At September 30, 1995, the
fair value of the Company's forward contracts approximated cost.
RELATED PARTIES
In fiscal 1994, the Company acquired shares of preferred stock of Portrait
Display Labs ("PDL") and a warrant to purchase additional shares of PDL
preferred stock in exchange for the cancellation of certain rights held by
the Company to purchase all of the outstanding equity securities or assets
of the predecessor entity to PDL. The warrant permitted the purchase of
approximately an additional 10% interest in PDL. The Company also was
granted one seat on PDL's Board of Directors. In addition, the Company
licensed PDL certain pivot display technology in exchange for the payment
of royalties. Product revenues were approximately $5.0 million in fiscal
1994. In fiscal 1995, the Company exercised the warrant for an additional
10% interest in PDL in exchange for cancellation of approximately $945,000
in accounts receivable. There were no product revenues for the fiscal 1995
to this related party. The receivable from PDL at September 30, 1995 was
approximately $980,000.
-42-
<PAGE>
Subsequent to September 30, 1995, the Company signed a series of
additional agreements with Portrait Display Labs, see Note 11 to the
Consolidated Financial Statements.
There were no material transactions from this or any other related party
during fiscal 1993.
NOTE TWO. BORROWINGS
LINE OF CREDIT ARRANGEMENT
In February 1995, the Company and IBM Credit Corp. ("ICC") entered into
a $30.0 million Inventory and Working Capital Financing Agreement (the
"ICC Agreement"). The ICC Agreement permits advances for inventory and
working capital up to the lesser of $30.0 million or 85% of eligible
receivables ("Inventory and Working Capital Advances"). In September
1995, ICC advanced an additional $20.0 million under the ICC Agreement
to finance the manufacturing of the Company's MacOS compatible products
(the "MacOS Advances"). Advances bear interest at rates ranging from
prime rate plus 2.25% to prime rate plus 4% and are secured by all the
assets of the Company. The ICC Agreement expires in March 1996.
As of September 30, 1995, $50.8 million was outstanding under the ICC
Agreement consisting of $30.8 million in Inventory and Working Capital
Advances and approximately $20.0 million in MacOS Advances. The
outstanding Inventory and Working Capital Advances included $18.7
million in working capital advances supported by eligible receivables,
$6.1 million in working capital advances in excess of the borrowing
base, and $6.1 million in inventory advances. The $24.7 million in
working capital advances are included in Short-term borrowings in the
Consolidated Financial Statements. The $6.1 million in inventory
advances, together with the approximately $20.0 million in MacOS
Advances, are included in Accounts payable in the Consolidated Financial
Statements.
As of September 30, 1995, the Company was not in compliance with all of
its contractual obligations and financial covenants under the ICC
Agreement (specifically, revenues to working capital ratio, net profit
to revenue, and total liabilities to total net worth); however, IBM
Credit has waived such defaults pursuant to an amendment to the ICC
Agreement. See Note 11 to the Consolidated Financial Statements.
In addition, the Company entered into a Business Loan Agreement on March
20, 1995 with Silicon Valley Bank. The agreement, which expires on March
19, 1996, allows the Company to issue letters of credit as a
sub-facility under a $5.0 million foreign accounts receivable revolving
line of credit subject to an interest rate of up to the prime rate plus
1.25%. The related debt outstanding as of September 30, 1995 was $1.7
million and outstanding letters of credit were $0.8 million. The
Company was not in compliance with all the terms of this credit
arrangement.
One of the Company's subsidiaries has a revolving line of credit with a
bank in Japan. Borrowings were approximately $3.1 million at September
30, 1995. This note bears interest at the lesser of the Euro-yen rate
or the bank's prime lending rate (1.5 percent at September 30, 1995, the
prime rate). The line of credit is renewed every six months with the
next renewal in December 1995.
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<PAGE>
NOTE THREE. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases facilities under operating leases and certain
computer equipment and office furniture under capital leases.
Depreciation expense for assets under capital leases is included in
depreciation and amortization expense. The cost and net book value of
these capitalized lease assets included in property and equipment are
(in thousands):
<TABLE>
<CAPTION>
At September 30, Cost Net Book Value
------- --------------
<S> <C> <C>
1995 $ 7,437 $ 2,642
1994 7,437 4,021
</TABLE>
Future minimum lease payments at September 30, 1995, under capital
leases and noncancelable operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
1996 $ 1,686 $1,837
1997 1,155 1,887
1998 280 1,843
1999 -- 1,750
2000 -- 1,759
------- ------
Total minimum lease payments 3,121 $9,076
Amount representing interest (296)
-------
Present value of minimum lease payments 2,825
Amount due within one year (1,494)
-------
Amount due after one year $ 1,331
-------
-------
</TABLE>
Rent expense charged to operations amounted to approximately $3.5
million, $3.0 million and $3.8 million for the years ended September 30,
1995, 1994 and 1993, respectively. The rent expense amounts for fiscal
1995, 1994 and 1993 exclude a provision for remaining lease obligations
on excess facilities. See Note 8 of Notes to the Consolidated Financial
Statements.
Sublease income for fiscal 1995 and 1994 was approximately $0.6 million
and $0.1 million. There was no sublease income for fiscal 1993.
CONTINGENCIES
DISPLAY SCREEN SIZE
The Company was named as one of approximately 42 defendants in Shapiro
et al. v. ADI Systems, Inc. et al., Superior Court of California, Santa
Clara County, case no. CV751685, filed August 14, 1995. Radius was
named as one of approximately 32 defendants in Maizes & Maizes et al. v.
Apple Computer et al., Superior Court of New Jersey, Essex County, case
no. L-13780-95, filed December 15, 1995. Plaintiffs in each case
purport to represent alleged classes of similarly situated persons
and/or the general public, and allege that the defendants falsely
advertise that the viewing areas of their computer monitors are larger
than in fact they are.
The Company was served with the Shapiro complaint on August 22, 1995,
and has not yet been served with the Maizes complaint. Defendants'
petition to the California State Judicial Council to coordinate the
Shapiro case with similar cases brought in other California
jurisdictions was granted in part and it is anticipated that the
coordinated proceedings will be held in Superior Court of California,
San Francisco County. Discovery proceedings have not yet begun in
either case. In the opinion of management, based on the facts known at
this
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<PAGE>
time, the eventual outcome of these cases is unlikely to have a material
adverse effect on the results of operations or financial position of the
Company.
ELECTRONICS FOR IMAGING
On November 16, 1995, Electronics for Imaging, Inc. ("EFI") filed a suit
in the United States District Court in the Northern District of
California alleging that the Company infringes a patent allegedly owned
by EFI. Although the complaint does not specify which Radius products
allegedly infringe the patent, EFI is a prime competitor of Radius in
the Color Server market. Radius' Color Server products are material to
its business.
The Company has filed an answer denying all material allegations, and
has filed counterclaims against EFI alleging causes of action for
interference with prospective economic benefit, antitrust violations,
and unfair business practices. The Company believes it has meritorious
defenses to EFI's claims and is defending them vigorously. In addition,
the Company believes it may have indemnification rights with respect to
EFI's claims. In the opinion of management, based on the facts known at
this time, the eventual outcome of this case is unlikely to have a
material adverse effect on the results of operations or financial
position of the Company.
SECURITIES LITIGATION.
In September 1992, the Company and certain of its officers and directors
were named as defendants in a securities class action litigation brought
in the United States District Court for the Northern District of
California that sought unspecified damages, prejudgment and postjudgment
interest, attorneys' fees, expert witness fees and costs, and equitable
relief. In July 1994, SuperMac and certain of its officers and
directors, several venture capital firms and several of the underwriters
of SuperMac's May 1992 initial public offering and its February 1993
secondary offering were named as defendants in a class action litigation
brought in the same court that sought unspecified damages, prejudgment
and postjudgment interest, attorneys' fees, experts' fees and costs, and
equitable relief (including the imposition of a constructive trust on
the proceeds of defendants' trading activities).
In June 1995, the Court approved the settlement of both litigations and
entered a Final Judgment and Order of Dismissal. Under the settlement
of the litigation brought in 1992 against the Company, our insurance
carrier paid $3.7 million in cash and the Company will issue 128,695
shares of its Common Stock to a class action settlement fund. In the
settlement of the litigation brought in 1994 against SuperMac, the
Company paid $250,000 in cash and will issue into a class action
settlement fund 707,609 shares of its Common Stock. The number of
shares to be issued by the Company will increase by up to 100,000 if the
price of the Common Stock is below $12 per share during the 60-day
period following the initial issuance of shares. In connection with
these settlements, the Company recorded a charge of $12.4 million in the
Consolidated Financial Statements reflecting settlement costs not
covered by insurance as well as related legal fees.
The Company has periodically received communications from third parties
asserting infringement of patent rights on certain of the Company's
products and features. Management does not believe any claims made will
have a material adverse effect on the results of operations or financial
position of the Company.
NOTE FOUR. SHAREHOLDERS' EQUITY
COMMON STOCK
In June 1995, the Company sold approximately 2.5 million shares of its
Common Stock in a series of private placements to a small number of
investors unaffiliated with the Company. Proceeds from the offering,
net of commission and other related expenses were $21.4 million. The
net proceeds were used for working capital.
STOCK OPTIONS
The Company's 1986 Stock Option Plan, as amended, authorizes the
issuance of up to 2,975,000 shares of common stock upon the exercise of
incentive stock options or nonqualified stock options that may be
granted to officers, employees (including directors who are also
employees), consultants and independent contractors. Under the plan,
options are exercisable for a term of up to ten years after issuance.
Options may be granted at prices ranging from 50% to 100% of the fair
market value of the stock on the date of grant, as determined by the
Board of Directors. Vesting of shares is also determined by the Board of
Directors at the date of grant. The 1986 Stock Option Plan will expire
in October 1996.
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<PAGE>
On August 31, 1994, pursuant to the Merger, Radius assumed 975,239
outstanding options originally issued under the SuperMac 1988 Stock
Option Plan. These options will be administered in accordance with the
SuperMac 1988 Stock Option Plan until all options are exercised or
expired. Under the plan, options are exercisable for a term of up to
ten years after issuance.
The following table summarizes the consolidated activity of the 1986 and
1988 Stock Option Plans and the 1992 Non-Employee Directors' Stock
Option Plan:
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
Outstanding at beginning of year 2,042,481 2,208,783 2,157,040
Granted 707,590 892,131 1,219,514
Exercised (213,791) (294,042) (516,597)
Canceled (838,745) (764,391) (651,174)
------------ ------------ ------------
Outstanding at September 30 1,697,535 2,042,481 2,208,783
------------ ------------ ------------
------------ ------------ ------------
Price range at September 30 $1.36-$28.96 $0.42-$32.18 $0.42-$30.14
------------ ------------ ------------
------------ ------------ ------------
Exercisable at September 30 1,325,222 706,474 455,241
------------ ------------ ------------
------------ ------------ ------------
Available for grant at September 30 415,586 281,726 331,314
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The stock option activity as shown in the table for fiscal 1993 has not
been restated to adjust SuperMac's fiscal year end to that of Radius.
Fiscal 1993 includes Radius' activity on a September 30 fiscal year basis
and SuperMac's activity on a December 31 calendar year basis. The fiscal
1994 period includes the Radius activity for fiscal year ended September
30, 1994 and SuperMac activity for the nine months ended September 30,
1994.
The Company has also reserved 100,000 shares of common stock for issuance
to non-employee directors pursuant to options granted under the 1994
Directors' Stock Option Plan (the "1994 Plan"). Such options may only be
nonqualified stock options, must be exercised within ten years from the
date of grant, and must be granted in accordance with a non-discretionary
formula. Under this formula, each new director receives an option to
purchase 10,000 shares when that director is first appointed to the Board
and an option to purchase 2,500 shares on each anniversary of such
director's appointment. As of September 30, 1995, 27,500 shares had been
granted under this plan at exercise prices ranging from $7.44 to $12.00
per share. Options to purchase 1,250 shares were canceled following the
resignation of a director. None of the options granted under the 1994
Plan are exercisable.
Prior to the approval of the 1994 Plan, the 1990 Directors' Stock Option
Plan (the "Prior Plan") was in effect. As of September 30, 1995, the
Prior Plan had 33,750 options outstanding at prices ranging from $8.00 to
$17.25. Such options are nonqualified stock options, must be exercised
within five years from the date of grant, and were granted in accordance
with a non-discretionary formula. Options unissued under the Prior Plan
become available for grant under the 1994 Plan. As of September 30,
1995, options to purchase 37,500 shares became available upon the
resignation of three directors. In addition, 28,750 options to purchase
shares, which were never granted under the Prior Plan were transferred to
the 1994 Plan.
In March 1993, the Company granted a nonqualified stock option to one
officer to purchase a total of 250,000 shares of common stock outside the
Company's 1986 Stock Option Plan at an exercise price of $7.75 per share.
This option is exercisable for a term of ten years and vests over a fifty
month period commencing on the date of grant. During fiscal 1994, 150 of
these shares were exercised by the officer, and as of September 30, 1995
an additional 149,850 shares were exercisable.
In June 1995, the Company repriced approximately 232,000 of then
outstanding options to an exercise price of $12.00 per share, the fair
market value of the Company's stock on the date of the repricing.
EMPLOYEE STOCK PURCHASE PLAN
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<PAGE>
The Company has an employee stock purchase plan under which substantially
all employees may purchase common stock through payroll deductions at a
price equal to 85% of its fair market value as of certain specified
dates. Stock purchases under this plan are limited to 10% of an
employee's compensation, and in no event may exceed $21,250 per year.
Under this plan a total of 650,000 shares of common stock have been
reserved for issuance to employees. At September 30, 1995, 255,859
shares remain available for issuance under the plan.
EMPLOYEE STOCK PLANS
The Company account for its stock option plans and the Employee Stock
Purchase Plan in accordance with provisions of the accounting Principles
Board's Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees." In 1995, the Financial Accounting Standards Board released
the Statement of Financial Accounting Standard No. 123 (SFAS 123),
"Accounting for Stock Based Compensation." SFAS 123 provides an
alternative to APB 25 and is effective for fiscal years beginning after
December 15, 1995. The Company expects to continue to account for its
employee stock plans in accordance with the provision of APB 25.
Accordingly, SFAS 123 is not expected to have any material impact on the
Company's financial position or results of operations.
NOTE FIVE. FEDERAL AND STATE INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------------------------------------------
For years ended September 30
(in thousands)
<S> <C> <C> <C>
Federal:
Current $ -- $(12,583) $ (3,974)
Deferred 7,170 12,311 (7,505)
------ -------- --------
7,170 (272) (11,479)
Foreign:
Current 650 376 297
------ -------- --------
State:
Current 20 (3,641) 844
Deferred 1,230 (1,063) (3,436)
------ -------- --------
1,250 (4,704) (2,592)
------ -------- --------
$9,070 $ (4,600) $(13,774)
------ -------- --------
------ -------- --------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets and
liabilities are as follows:
-47-
<PAGE>
<TABLE>
<CAPTION>
1995 1994
----------------------------------------------------------------------------
For years ended September 30
(in thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryovers $ 27,077 $ 5,100
Reserves and accruals not currently tax deductible 22,342 10,055
Restructuring reserves 22,314 --
Credit carryovers 6,280 3,100
Inventory valuation differences 4,188 12,612
Depreciation 4,079 4,202
Capitalized research & development expenditures 3,202 2,193
Other -- 374
-------- --------
Total deferred tax assets 89,482 37,636
-------- --------
Valuation allowance for deferred tax assets (85,086) (26,724)
-------- --------
Deferred tax assets $ 4,396 $ 10,912
-------- --------
-------- --------
Deferred tax liabilities:
State income tax $ 3,849 $ 2,512
Other 547 --
-------- --------
Total deferred tax liabilities 4,396 2,512
-------- --------
Net deferred tax assets $ -- $ 8,400
-------- --------
-------- --------
</TABLE>
FASB Statement 109 provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. The Company's
valuation allowance reduced the deferred tax asset to the amount
realizable. The Company has provided a full valuation allowance against
its net deferred tax assets due to uncertainties surrounding their
realization. Due to the net losses reported in the prior three years and
as a result of the material changes in operations reported in its 1995
fiscal fourth quarter, predictability of earnings in future periods is
uncertain. The Company will evaluate the realizability of the deferred
tax asset on a quarterly basis.
The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to income before taxes.
The sources and tax effects of the differences are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------------------------------------------------
For years ended September 30
(in thousands)
<S> <C> <C> <C>
Expected tax at statutory rate $(42,935) $(28,726) $(12,080)
Change in valuation allowance 49,820 26,724 --
State income tax, net of federal tax benefit 1,250 (3,105) (1,707)
Non-deductible merger costs -- 1,054 --
Non-deductible charge for purchased
research and development -- 763 --
Research and development tax credits (497) (458) (734)
Other 1,432 (852) 747
-------- -------- --------
$ 9,070 $ (4,600) $(13,774)
-------- -------- --------
-------- -------- --------
</TABLE>
As of September 30, 1995, the Company had net operating loss
carryforwards for federal and state income tax purposes of approximately
$71,000,000 and $27,900,000, respectively. The state loss carryforwards
will expire beginning in 1998, if not utilized, and the federal loss
carryforwards will expire beginning in 2010, if not utilized. In
addition, the Company had tax credit carryforwards of approximately
$6,280,000 which will expire beginning in 2005, if not utilized.
Utilization of net operating loss and tax credit carryforwards may be
subject to substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986 and similar
state provisions. The annual limitation may result in the expiration of
net operating losses before utilization.
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<PAGE>
NOTE SIX. STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
For years ended September 30,
(in thousands)
Supplemental disclosure of cash
flow information (in thousands):
Cash paid (received) during the year for:
Interest $ 1,620 $ 812 $ 927
------- ------- -------
------- ------- -------
Income taxes $(8,370) $(8,295) $ 2,661
------- ------- -------
------- ------- -------
Supplemental schedule of noncash
investing and financing activities
(in thousands):
Retirement of fully and partially
depreciated assets $ 4,459 $ 6,025 $ 1,544
------- ------- -------
------- ------- -------
Tax benefit from stock options
exercised $ -- $ 425 $ 3,358
------- ------- -------
------- ------- -------
Equipment acquired pursuant to
capital leases $ -- $ 2,000 $ 4,138
------- ------- -------
------- ------- -------
Common stock issued pursuant to
VideoFusion agreement $ 2,857 $ -- $ --
------- ------- -------
------- ------- -------
</TABLE>
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<PAGE>
NOTE SEVEN. EXPORT SALES AND MAJOR CUSTOMERS
The Company currently operates in one principal industry segment: the
design, manufacturing and marketing of color publishing and digital video
computer products. The Company's export sales were approximately
$124,469,000, $112,050,000 and $108,115,000 in the fiscal years ended
September 30, 1995, 1994 and 1993, respectively, and included export sales
to Europe of approximately $57,257,000, $60,621,000, and $59,473,000,
respectively. The Pacific, Asia, and Latin America region sales were
approximately $67,212,000, $51,428,000 and $48,642,000 for fiscal years
ended September 30, 1995, 1994 and 1993, respectively.
One customer accounted for approximately 34.0%, 13.5% and 11.5% of the
Company's net sales during the years ended September 30, 1995, 1994 and
1993, respectively.
NOTE EIGHT. RESTRUCTURING AND OTHER CHARGES
RADIUS JUNE 1993 RESTRUCTURING AND OTHER CHARGES
In June 1993, Radius announced a restructuring program designed to reduce
costs and improve operating efficiencies. The program included, among
other things, the write-down of inventory following Radius' decision to
phase out its older generation of products, lease termination expenses,
capital equipment write-offs, severance payments, and costs associated with
the discontinuation of Radius' minicomputer-class server product. The
restructuring program costs of $15.5 million were recorded during the third
quarter of fiscal 1993. These charges (in thousands) are included in: cost
of sales ($10,993); research and development ($411); and selling, general
and administrative expenses ($4,096). The Company completed this
restructuring event by the end of calendar 1994. There were no material
changes in the restructuring plan or in the estimates of the restructuring
costs from the recognition of the charge in June 1993 with the completion
of the restructuring program in December 1994.
SUPERMAC DECEMBER 1993 RESTRUCTURING AND OTHER CHARGES
In December 1993, SuperMac recorded charges of $16.6 million in connection
with a program to adjust inventory levels, eliminate excess facilities,
terminate certain projects and contract arrangements and reduce the number
of employees. The charges (in thousands) are included in: cost of sales
($13,352); research and development ($2,000); and selling, general and
administrative expenses ($1,238). There have been no material changes in
the restructuring plan or in the estimates of the restructuring costs. The
Company has $236,000 remaining in its restructuring reserve related to
facility costs, the balance of which is expected to be eliminated in fiscal
1996. As noted in the Consolidated Financial Statements, the consolidated
results for the Company in both the twelve months ended September 30, 1994
and the fiscal period ended 1993 include SuperMac's $16.6 million charge.
RADIUS FISCAL 1994 MERGER RELATED RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of fiscal 1994, the Company recorded charges of $43.4
million in connection with the Merger of Radius and SuperMac. These
charges include the discontinuance of duplicative product lines and related
assets; elimination of duplicative facilities, property and equipment and
other assets; and personnel severance costs as well as transaction fees and
costs incidental to the merger. The charges (in thousands) are included
in: net sales ($3,095); cost of sales ($25,270); research and development
($4,331); and selling, general and administrative expenses ($10,711). The
elements of the total charge as of September 30, 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
REPRESENTING
-------------------------------------
CASH OUTLAYS
----------------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $22,296 $19,200 $3,096 $ --
Excess facilities 2,790 400 2,236 154
Revision of the operations
business model 9,061 7,078 1,268 715
Employee severance 6,311 -- 6,311 --
Merger related costs 2,949 -- 2,949 --
------- ------- ------- -----
Total charges $43,407 $26,678 $15,860 $ 869
</TABLE>
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<PAGE>
The adjustment of inventory levels reflects the discontinuance of
duplicative product lines. The provision for excess facility costs
represents the write-off of leaseholds and sublease costs of Radius'
previous headquarters, the consolidation into one main headquarter and the
consolidation of sales offices. The revision of the operations business
model reflects the reorganization of the combined Company's manufacturing
operations to mirror Radius' manufacturing reorganization in 1993. This
reorganization was designed to outsource a number of functions that
previously were performed internally, reduce product costs through
increased efficiencies and lower overhead, and focus the Company on a
limited number of products. Employee severance costs are related to
employees or temporary employees who were released due to the revised
business model. Approximately 250 employees were terminated in connection
with the Merger. The provision for merger related costs is for the costs
associated with the Merger transaction, such as legal, investment banking
and accounting fees. The Company has spent $15.9 million of cash for
restructuring through September 30, 1995. The Company expects to have
substantially completed the restructuring by September 1996. During fiscal
1995, approximately $2.1 million of merger related retructuring reserves
were reversed and recorded as an expense reduction due to changes in
estimated requirements.
RADIUS FISCAL 1995 RESTRUCTURING AND OTHER CHARGES
In September 1995, Radius recorded charges of $57.9 million in connection
with the Company's efforts to refocus its business on the color publishing
and multimedia markets. The charges primarily included a writedown of
inventory and other assets. Additionally, it included expenses related to
the cancellation of open purchase orders, excess facilities and severance.
The charges (in thousands) are included in cost of sales ($47,004), and
selling, general and administrative expense ($10,861). The elements of the
total charge as of September 30, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
REPRESENTING
-------------------------------------
CASH OUTLAYS
----------------------
Asset
Provision Write-Downs Completed Future
<S> <C> <C> <C> <C>
Adjust inventory levels $33,138 $ 32,300 $ -- $ 838
Excess facilities 2,004 404 -- 1,600
Cancellation fees and asset
write-offs 19,061 5,196 -- 13,865
Employee severance 3,662 -- -- 3,662
------- ------- ------- -----
Total charges $57,865 $37,900 $ -- $19,965
</TABLE>
The adjustment of inventory levels reflects the discontinuance of several
product lines. The provision for excess facility costs represent the
write-off of leasehold improvements and the costs associated with
anticipated reductions in facilities. The cancellation fees and asset
write-offs reflect the Company's decision to refocus its efforts on
providing solutions for the color publishing and multimedia markets.
Employee severance costs are related to employees or temporary employees
who have been or will be released due to the revised business model. As of
December 15, 1995, approximately 157 positions had been eliminated in
connection with the new business model. The Company had not spent any cash
for this restructuring as of September 30, 1995. As of September 30, 1995,
the Company had cash and cash equivalents of $4.8 million. See
"Management's Business Recovery Plans" at Note 1 due to the Consolidated
Financial Statements. The Company expects to have substantially completed
the restructuring by September 1996.
NOTE NINE. VIDEOFUSION ACQUISITION
The Company acquired VideoFusion, Inc. ("VideoFusion") on September 9,
1994. VideoFusion is a developer of advanced digital video special effects
software for Apple Macintosh and compatible computers. The Company
acquired VideoFusion in exchange for approximately 890,000 shares of the
Company's Common Stock, 205,900 shares of which were issued at the closing
of the acquisition. The balance of the shares were to be issued in
installments over a period of time contingent on the achievement of certain
performance milestones and other factors. In addition, the Company was
required to pay up to $1.0 million in cash based upon net revenues derived
from future sales of products incorporating VideoFusion's technology. The
purchase price for VideoFusion, including closing costs and the issuance of
shares of Common Stock valued at $500,000 in connection with the
achievement of the first milestone was approximately $2.4 million. This
amount was allocated to the assets and liabilities of VideoFusion and
resulted in identifiable intangibles of approximately $440,000 and an in-
process research and development expense of approximately $2.2 million.
The intangible asset was to be amortized over
-51-
<PAGE>
two years. The Company recognized the charge of approximately $2.7 million
for in-process research and development and other costs associated with the
acquisition of VideoFusion during the fourth quarter of fiscal 1994.
In May 1995, the Company entered into an agreement with the former holders
of VideoFusion stock to settle the contingent stock and earnout payments
that were originally contemplated. Pursuant to this agreement, the Company
issued approximately 212,000 shares, and paid approximately $200,000, to
the former holders of VideoFusion stock. These transactions resulted in
additional compensation expense of approximately $3.0 million which was
recorded in fiscal 1995.
NOTE TEN. MERGER WITH SUPERMAC TECHNOLOGIES, INC.
On August 31, 1994, Radius merged with SuperMac in exchange for 6,632,561
shares of Radius' common stock. SuperMac was a designer, manufacturer, and
marketer of products that enhanced the power and graphics performance of
personal computers. The Merger was accounted for as a pooling of
interests, and, accordingly, the Company's Consolidated Financial
Statements and Notes to Consolidated Financial Statements have been
restated to include the results of SuperMac for all periods presented.
Separate results of operations for the periods prior to the Merger are as
follows (in thousands):
<TABLE>
<CAPTION>
Merger-
Related
Radius Supermac Expenses Adjustment Combined
------ -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1994
Net revenues $162,922 $164,978 $ (3,095) $ -- $324,805
Net loss (18,293) (15,775) (43,407) -- (77,475)
Year ended September 30, 1993
(SuperMac as of December 1993)
Net revenues 134,872 202,501 -- -- 337,373
Net loss (17,415) (2,724) -- -- (20,139)
</TABLE>
The merger related expenses reflect the recording of the merger related
restructuring and other charges.
Prior to the Merger, SuperMac's fiscal year end was December 31.
SuperMac's separate results for fiscal 1994 have been restated to conform
with the twelve months ended September 30. The Consolidated Financial
Statements for all periods prior to fiscal 1994 have not been restated to
adjust SuperMac's fiscal year end to that of Radius. Such periods include
Radius' results of operations and balance sheet data on a September 30
fiscal year basis and SuperMac's on a December 31 calendar year basis.
Therefore, the results for both the fiscal year ended September 30, 1994
and the results for the fiscal year ended 1993 include the results for
SuperMac's three months ended December 31, 1993. Unaudited revenues, cost
and expenses, and net loss of SuperMac for the three months ended December
31, 1993 were, $48,478,000, $64,715,000 and $9,914,000, respectively.
The Company incurred substantial costs in connection with the Merger and
consolidation of operations. Included in the accompanying consolidated
statement of operations for the year ended September 30, 1994 are merger
related expenses totaling $43,407,000 consisting primarily of charges for
the discontinuance of duplicative product lines and related assets,
elimination of duplicative facilities, property and equipment and other
assets, and personnel severance costs as well as transaction fees and costs
incident to the Merger. See Note 8 of Notes to the Consolidated Financial
Statements.
NOTE ELEVEN. SUBSEQUENT EVENTS
PORTRAIT DISPLAY LABS
On December 19, 1995, the Company signed a series of agreements with
Portrait Display Labs, Inc. ("PDL"). The agreements assigned the Company's
pivoting technology to PDL and canceled PDL's on-going royalty obligation
to the Company under an existing license agreement in exchange for a one-
time cash payment. PDL also granted the Company a limited license back to
the pivoting technology. Under these agreements, PDL settled its
outstanding receivable to the Company by paying the Company $500,000 in
cash and issuing to the Company 214,286 shares of PDL's Common Stock. See
Note 1 to the Consolidated Financial Statements.
-52-
<PAGE>
DISPLAY TECHNOLOGIES ELECTROHOME INC.
On December 21, 1995, the Company signed a Business Purchase Agreement and
an Asset Purchase and License Agreement with Display Technologies
Electrohome Inc. ("DTE"). Pursuant to the agreements and subject to
certain closing conditions, DTE will purchase Radius' monochrome display
monitor business and certain assets related thereto, for approximately
$200,000 in cash and cancellation of $2.5 million of the Company's
indebtedness to DTE. In addition, DTE and Radius will cancel outstanding
contracts relating to DTE's manufacture and sale of monochrome display
monitors to Radius.
COLOR SERVER GROUP
On December 23, 1995, the Company signed a definitive agreement pursuant
to which the Company will sell its Color Server business to Splash
Merger Company, Inc. (the "Buyer"), a wholly owned subsidiary of Splash
Technology Holdings, Inc. (the "Parent"), a corporation formed by various
investment entities associated with Summit Partners. The Company will
receive approximately $21,945,175 in cash (subject to certain post-closing
adjustments) and 4,282 shares of the Parent's 6% Series B Redeemable and
Convertible Preferred Stock (the " Series B Preferred Stock"). The shares
of Series B Preferred Stock will be convertible by the Company at any time
into 19.9% of the Parent's common stock outstanding as of the closing of
the transaction. The shares of Series B Preferred Stock also will be
redeemable by the Parent at any time, and will be subject to mandatory
redemption beginning on the sixth anniversary of issuance, in each case at
a redemption price of $1,000 per share plus accrued dividends. The
transaction is expected to close in January 1996. Under the Inventory and
Working Capital Agreement, as recently amended, with IBM Credit Corp., the
Company is required to pay all of the net proceeds of the Color Server
business transaction to IBM Credit Corp. in order to reduce the Company's
outstanding indebtedness under that agreement.
IBM CREDIT CORP.
On December 14, 1995, the Company and IBM Credit Corp. ("ICC") amended the
Inventory and Working Capital Financing Agreement (the "ICC Agreement")
entered into by the Company and ICC on February 17, 1995 and subsequently
revised in September 1995 to fund the manufacturing of the Company's MacOS
compatible systems products. See Note 2 to the Consolidated Financial
Statements. Under the amendment, ICC waived the Company's failure to comply
with all of its contractual obligations and financial covenants under the
ICC Agreement. The ICC Amendment, among other things, also provides that
until March 31, 1996 ICC will extend advances to the Company in an amount
up to 90% of the Company's collections and fund the Company's payroll in
the event that collections are insufficient to permit the advances needed
for this purpose. Such advances and payroll funding, however, may be
suspended by ICC (i) immediately following a material default of the ICC
Amendment, and (ii) following thirty (30) days notice in the event of any
default of the ICC Agreement. The ICC Amendment also requires the Company
to pay all of the net proceeds of the Color Server Group transaction to ICC
to reduce the Company's outstanding indebtedness under the ICC Agreement.
1995 STOCK OPTION PLAN
On December 20, 1995, the Company's Board of Directors adopted the 1995
Stock Option Plan to replace the 1986 Stock Option Plan that expires in
1996, and reserved 850,000 shares (plus all unissued and unexercised shares
available under the existing 1986 Stock Option Plan) for issuance
thereunder. The 1995 Stock Option Plan is subject to shareholder approval.
See Note 4 to the Consolidated Financial Statements.
-53-
<PAGE>SCHEDULE II --- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions(1) period
- ----------- ---------- ---------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended September 30,
1993 (2) $1,825 $1,272 $0 $975 $2,122
Year ended September 30,
1994 $2,018 (2) $1,283 $0 $753 $2,548
Year ended September 30,
1995 $2,548 $6,837 $0 $883 $8,502
_____________________________
</TABLE>
(1) Uncollectable accounts written off.
(2) The Consolidated Financial Statements for fiscal 1993 have not been
restated for the change in fiscal year.This period includes Radius' results
of operations and balance sheet data on a September 30 fiscal year basisand
SuperMac's on a December 31 calendar year basis.
-54-
<PAGE>
EXHIBIT INDEX
Exhibit
Number Title
- ------- -----
2.06 First Amendment to Agreement and Plan of Reorganization between
Radius Inc. and Video Fusion, Inc. dated August 25, 1994
2.07 Second Amendment to Agreement and Plan of Reorganization between
Radius Inc. and VideoFusion, Inc. dated September 6, 1994.
2.08 Third Amendment to Agreement and Plan of Reorganization between
Radius Inc. and VideoFusion, Inc. dated May 10, 1995
10.01 * C Registrant's 401(k) Savings and Investment Plan Loan Policy
10.02 * Registrant's 1995 Stock Option Plan.
10.03 * Form of Stock Option Agreement and Exercise Request as currently
in effect under 1995 Stock Option Plan.
10.08 C Acknowledgement, Waiver and Amendment to Radius Inc. Inventory
and Working Capital Financing Agreement by and between Radius
Inc. and International Business Machines Credit Corporation dated
December 14, 1995.
11.01 Computation of per share earnings
21.01 List of Registrant's subsidiaries
23.01 Consent of Ernst & Young, LLP, Independent Auditors
27 Financial Data Schedule
<PAGE>
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF REORGANIZATION BETWEEN
RADIUS INC. AND VIDEOFUSION, INC.
This First Amendment to Agreement and Plan of Reorganization ("AMENDMENT") is
entered into as of August 25, 1994, by and between Radius Inc., a California
corporation ("RADIUS"), and VideoFusion, Inc., a Delaware corporation
("VIDEOFUSION").
RECITALS
A. The parties entered into that certain Agreement and Plan of
Reorganization dated as of July 19, 1994 (the "AGREEMENT").
B. Pursuant to Section 11.6 of the Agreement, the parties may amend the
Agreement at any time before or after approval of the Agreement by the
stockholders of VideoFusion.
C. The stockholders of VideoFusion have not approved the Agreement as of
the date hereof.
D. The parties wish to amend the Agreement to the extent provided in this
Amendment.
NOW, THEREFORE, the parties hereto agree as follows:
1. SCOPE OF AMENDMENT. Except as specifically provided herein, the
parties reaffirm the Agreement. All capitalized terms used in this Amendment
have the definition used in the Agreement unless there is a different definition
in this Amendment. This Amendment shall amend the Agreement only to the extent
provided herein.
2. SECTION 1.1.1. Section 1.1.1 of the Agreement is hereby amended to
read as follows:
1.1.1 CONVERSION OF SHARES. Each share of VideoFusion
Common Stock, $0.001 par value ("VIDEOFUSION COMMON STOCK"), issued
and outstanding immediately prior to the Effective Time, will, by
virtue of the Merger and at the Effective Time, and without further
action on the part of any holder thereof, be converted into the
"Applicable Number" of fully paid and nonassessable shares of Radius
Common Stock ("RADIUS COMMON STOCK"), subject to adjustment as
provided in Sections 1.1.2 and 1.2 below (the "INITIAL PAYMENT"), and
the contingent right to receive the consideration provided for in
Sections 1.8 and 1.9 below. The "APPLICABLE NUMBER" will be
determined by (a) dividing $5,053,800, adjusted pursuant to Section
1.1.3 below, by $6.75 and (b) dividing 50% of that quotient by the sum
of the total number of issued and outstanding shares of VideoFusion
Common Stock at the Effective Time.
3. SECTION 1.8.3. Section 1.8.3 of the Agreement is hereby amended to
read as follows:
<PAGE>
1.8.3 MILESTONE 3. At such time as the VideoFusion
Employees integrate Radius' 4EA technology into VideoFusion Andretti
in accordance with mutually agreed upon written specifications
delivered at or before the Closing ("MILESTONE 3"), Radius will issue
and deliver $1,684,600 in shares of Radius Common Stock valued at the
Milestone Valuation. However, such $1,684,600 amount shall be reduced
by $21,058 for each week, or portion thereof, that the completion of
Milestone 3 is delayed beyond the date that is six (6) months after
completion of Milestone 2. In no event, however, shall the total
value of the shares of Radius Common Stock issued in the Initial
Payment (based on a per share value of $6.75) plus the total value of
the shares of Radius Common Stock issued upon completion of Milestone
3 (based on a per share value at the Milestone Valuation) plus the
dollar amount of the Net Value adjustment made under Section 1.1.3
exceed $4,211,500.
4. SECTION 2.7. The first two sentences of Section 2.7 of the Agreement
are hereby amended to read as follows:
2.7 VIDEOFUSION FINANCIAL STATEMENTS. VideoFusion has
delivered to Radius in EXHIBIT 2.7 VideoFusion's unaudited balance
sheet as of June 30, 1994, VideoFusion's unaudited income statement
for the six-month period ended June 30, 1994, VideoFusion's unaudited
balance sheet as of December 31, 1993 and VideoFusion's unaudited
income statement for the fiscal year ended December 31, 1993
(collectively, the "VideoFusion Financial Statements"). The
VIDEOFUSION FINANCIAL STATEMENTS, in all material respects, (a) are in
accordance with the books and records of VideoFusion, (b) fairly and
accurately represent the financial condition of VideoFusion at the
respective dates specified therein and the results of operations for
the respective periods specified therein and (c) have been prepared in
substantial accordance with generally accepted accounting principles
applied on a consistent basis, subject only to the condition that the
VideoFusion Financial Statements do not contain all required
footnotes.
5. Section 10.2. The following is hereby added at the end of Section
10.2 of the Agreement:
Any amounts Radius receives as indemnifiable losses will be treated as
an adjustment to the consideration paid to the VideoFusion Holders
pursuant to Section 1 hereof.
6. NEW SECTION 11.18. The following is hereby added as new Section 11.18
of the Agreement:
11.18 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
RADIUS VIDEOFUSION
By: By:
------------------------------ -----------------------------
2
<PAGE>
Charles W. Berger Joel P. Epstein
Chairman and Chief Executive Officer Chairman
3
<PAGE>
SECOND AMENDMENT TO
AGREEMENT AND PLAN OF REORGANIZATION BETWEEN
RADIUS INC. AND VIDEOFUSION, INC.
This Second Amendment to Agreement and Plan of Reorganization ("SECOND
AMENDMENT") is entered into as of September 6, 1994, by and between Radius Inc.,
a California corporation ("RADIUS"), and VideoFusion, Inc., a Delaware
corporation ("VIDEOFUSION").
RECITALS
A. The parties entered into that certain Agreement and Plan of
Reorganization dated as of July 19, 1994 (the "AGREEMENT") and entered into a
First Amendment to the Agreement on August 25, 1994 (the "FIRST AMENDMENT").
B. Pursuant to Section 11.6 of the Agreement, the parties may amend the
Agreement at any time before or after approval of the Agreement by the
stockholders of VideoFusion.
C. The stockholders of VideoFusion have not approved the Agreement as of
the date hereof.
D. The parties wish to amend the Agreement to the extent provided in this
Amendment.
NOW, THEREFORE, the parties hereto agree as follows:
1. SCOPE OF AMENDMENT. Except as specifically provided herein, the
parties reaffirm the Agreement as specifically amended by the First Amendment,
and all references to "Agreement" in paragraphs 2 through 6 below shall refer to
the Agreement as amended by the First Amendment. All capitalized terms used in
this Amendment have the definition used in the Agreement unless there is a
different definition in this Amendment. This Second Amendment shall amend the
Agreement only to the extent provided herein.
2. SECTION 1.1. Section 1.1 of the Agreement is hereby amended by
replacing the date "September 9, 1994" in line 4 thereof with the date
"September 23, 1994".
3. SECTION 1.8.1. Section 1.8.1 of the Agreement is hereby amended to
read as follows:
1.8.1. MILESTONE 1. At such time as the former employees of
VideoFusion who become employees of Radius following the Closing,
along with any other Radius employees who work on the development of
software and/or products currently owned by VideoFusion (collectively,
the "VIDEOFUSION EMPLOYEES") (i) complete development of VideoFusion
Editor in accordance with mutually agreed upon written specifications
delivered at or
<PAGE>
before the Closing (the "EDITOR SOFTWARE PRODUCT"), (ii) prepare end-
user documentation relating to VideoFusion Editor (the "EDITOR END-
USER DOCUMENTATION") and (iii) produce an Editor Software Product and
Editor End-User Documentation of a quality sufficient for commercial
shipment purposes (the attainment of items (i), (ii) and (iii)
collectively referred to as "MILESTONE 1"), Radius will issue and
deliver $421,150 in shares of Radius Common Stock valued at the
Milestone Valuation. The value of such payment will be reduced by
$21,058 for each week, or portion thereof, that the completion of
Milestone 1 is delayed beyond November 10, 1994.
4. SECTION 1.8.2. Section 1.8.2 of the Agreement is hereby amended to
read as follows:
1.8.2. MILESTONE 2. At such time as the VideoFusion
Employees (i) complete development of VideoFusion Andretti in
accordance with mutually agreed upon written specifications delivered
at or before the Closing (the "ANDRETTI SOFTWARE PRODUCT"), (ii)
prepare end-user documentation relating to VideoFusion Andretti (the
"ANDRETTI END-USER DOCUMENTATION") and (iii) produce an Andretti
Software Product and Andretti End-User Documentation of a quality
sufficient for commercial shipment purposes (the attainment of items
(i), (ii) and (iii) collectively referred to as "MILESTONE 2"), Radius
will issue and deliver $421,150 in shares of Radius Common Stock
valued at the Milestone Valuation. The value of such payment will be
reduced by $21,058 for each week, or portion thereof, that the
completion of Milestone 2 is delayed beyond the date that is three (3)
months after completion of Milestone 1.
5. SECTION 1.8.3. Section 1.8.3 of the Agreement is hereby amended to
read as follows:
1.8.3 MILESTONE 3. At such time as the VideoFusion Employees
integrate Radius' 4EA technology ("4EA") into VideoFusion Andretti and
the Editor Software Product in accordance with mutually agreed upon
written specifications delivered at or before the Closing ("MILESTONE
3"), Radius will issue and deliver $1,684,600 in shares of Radius
Common Stock valued at the Milestone Valuation. However, such
$1,684,600 amount shall be reduced by $21,058 for each
2
<PAGE>
week, or portion thereof, that the completion of Milestone 3 is
delayed beyond the date that is that later of (i) four months
following receipt by VideoFusion of the API for the 4EA, or (ii) six
(6) months after completion of Milestone 2. In no event, however,
shall the total value of the shares of Radius Common Stock issued in
the Initial Payment (based on a per share value of $6.75 [$13.50 post
the 1-for-2 reverse stock split effected August 31, 1994]) plus the
total value of the shares of Radius Common Stock issued upon
completion of Milestone 3 (based on a per share value at the Milestone
Valuation) plus the dollar amount of the Net Value adjustment made
under Section 1.1.3 exceed $4,211,500.
6. SECTION 1.8.4. Section 1.8.4 of the Agreement is hereby amended to
read as follows:
1.8.4. ACCEPTANCE AND COMPLETION OF MILESTONE. For purposes
of determining whether the software to be developed in connection with
a Milestone (the "SOFTWARE") and the end-user documentation associated
with the Software (the "END-USER DOCUMENTATION") have been accepted by
Radius the following procedure shall be used. Following delivery of
the Software to Radius, Radius shall operate the Software for a period
not to exceed 15 business days to determine whether (i) the Software
and accompanying engineering documentation meets the applicable
specification, (ii) whether the End-User Documentation is complete and
(iii) whether the Software and the End-User Documentation are of a
quality sufficient for commercial shipment purposes. If the Software
successfully meets the specifications, the End-User Documentation is
complete and the Software and the End-User Documentation are of a
quality sufficient for commercial shipment purposes, Radius shall so
notify the VideoFusion Employees in writing of its acceptance of the
Software and the End-User Documentation as meeting conditions (i),
(ii) and (iii) of this Section 1.8.4. Notwithstanding the date that
Radius accepts Software and the End-User Documentation as meeting
conditions (i), (ii) and (iii) of this Section 1.8.4, the applicable
Milestone shall be deemed completed as of the date that the
VideoFusion Employees delivered acceptable Software and acceptable
End-User Documentation to Radius. If the Software and the End-User
Documentation fail to meet one or more of conditions (i), (ii) and
(iii) of this Section 1.8.4, Radius shall notify the VideoFusion
Employees of such failure(s) in writing so that the VideoFusion
Employees can correct, modify, or improve the Software and the End-
User Documentation so that conditions (i), (ii) and (iii) of this
Section 1.8.4 may be met. This process shall be repeated as may be
necessary until Radius accepts the Software and the End-User
Documentation as meeting conditions (i), (ii) and (iii) of this
Section 1.8.4. All decisions relating to acceptance by Radius of the
Software and the End-User Documentation shall be made by the Software
Review Committee consisting of Greg Millar, Joseph W. Klingler and the
Quality Assurance Manager for the product. Such Committee will review
the Software and the End-User Documentation in good faith and all
decisions of such Committee will be final and binding on Radius, all
VideoFusion Employees, and the VideoFusion Holders.
7. CONFLICTS. In the event that the provisions of this Second Amendment
conflict with the provisions of the Agreement or the First Amendment, the
provisions of this Second Amendment shall prevail and control.
3
<PAGE>
8. COUNTERPARTS. This Second Amendment may be executed in counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the date first above written.
RADIUS INC. VIDEOFUSION, INC.
By: By:
------------------------------- ---------------------------
Charles W. Berger Joel P. Epstein
Chairman and Chief Executive Officer Chairman
5
<PAGE>
THIRD AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN RADIUS INC. AND VIDEOFUSION, INC.
This Third Amendment to the Agreement and Plan of Reorganization ("THIRD
AMENDMENT") is entered into as of May 10, 1995 by and among Radius Inc., a
California corporation ("RADIUS") and each of the shareholders of VideoFusion,
Inc. ("VIDEOFUSION") Common Stock that existed immediately prior to the closing
of the merger of VideoFusion and Radius that occurred on September 9, 1994 (the
"VIDEOFUSION HOLDERS").
RECITALS
A. Radius and VideoFusion entered into that certain Agreement and Plan of
Reorganization dated as of July 19, 1994 (the "AGREEMENT"), entered into a First
Amendment to the Agreement on August 25, 1994, and entered into a Second
Amendment to the Agreement on September 6, 1994. All references to the
"Agreement" herein shall refer to the Agreement as so amended.
B. Radius and the Video Fusion Holders now wish to amend the Agreement to (i)
replace the contingent stock and earnout payments originally contemplated with
the payments set forth in this Third Amendment, (ii) correct an error in the
number of shares of Radius Common Stock originally issued to the VideFusion
Holders.
NOW, THEREFORE, the parties hereto agree as follows:
1. SCOPE OF AMENDMENT. Except as specifically provided herein, the parties
reaffirm the Agreement. All capitalized terms used in this Third Amendment have
the definition used in the Agreement unless there is a different definition in
this Third Amendment. This Third Amendment shall amend the Agreement only to
the extent provided herein.
2. SECTION 1.3. Section 1.3 of the Agreement originally contemplated that
shares of Radius Common Stock equal in value to $300,000 would be placed into an
escrow account at the time Radius Common Stock was issued following the
completion of Milestone 1 and Milestone 2. The parties hereby amend the
Agreement to delete Section 1.3 and any requirement that any shares of Radius
Common Stock issued to the VideoFusion Holders be placed in escrow.
3. SECTION 1.8. Section 1.8 (including Sections 1.8.1 through 1.8.4
thereunder) of the Agreement is hereby amended in its entirety to read as
follows:
In addition to the Radius Common Stock issued and delivered pursuant to
Section 1.1.1 hereof, on June 1, 1995 Radius will issue and deliver to the
VideoFusion Holders, in the same proportion as the conversion pursuant to
Section 1.1.1 hereof, 177,078 fully paid and nonassessable shares of Radius
Common Stock. Such number of shares of Radius Common Stock was obtained by
dividing the "Remaining Consideration" by $13.50. The "REMAINING
CONSIDERATION" is $2,390,555.00 which equals the maximum dollar value of
the contingent shares of Radius Common Stock that were originally
contemplated to be issued to the VideoFusion Holders ($2,526,900.00) minus
the sum of (i) 84.23% of the $150,000 penalty for Milestone 1 ($126,345.00)
and (ii) $10,000.00 in connection with the settlement payment required to
terminate VideoFusion's sales representative agreement with Atlantech. No
fractional shares of Radius Common Stock will be issued on June 1, 1995,
but in lieu thereof, each VideoFusion Holder will receive an amount of cash
equal to $13.50 multiplied by the fraction of a share of Radius Common
Stock to which such holder would otherwise be entitled.
-1-
<PAGE>
4. SECTION 1.9. Section 1.9 of the Agreement is hereby amended in its
entirety to read as follows:
In addition to the consideration delivered pursuant to Sections 1.1.1 and
1.8 hereunder, Radius shall pay the VideoFusion Holders, in the same
proportion as the conversion pursuant to Section 1.1.1 hereof, a cash
payment on July 15, 1995 equal to the sum of the "Accrued Royalties" plus
$168,460.00 (i.e. 84.23% of $200,000.00). The "ACCRUED ROYALTIES" equal
royalties as calculated below on the license or sale of VideoFusion
products (whether existing at the time of the Merger or developed
thereafter by the VideoFusion Employees as extensions of the VideoFusion
technology) between September 9, 1994 and the date of this Third Amendment:
Application Software Sold Separately: 8.423% of ASP
Application Software Sold Bundled with Hardware: 1.263% of SRP
"ASP" means the actual revenues Radius receives from the license or sale of
VideoFusion products sold separately less sales commissions, returns,
duties, taxes, freight and similar expenses. "SRP" means Radius' suggested
retail price for the VideoFusion product that is sold as a bundle with
Radius hardware.
5. SHARE CORRECTION. The parties acknowledge that at the time of the Closing,
a computational error in calculating the Applicable Number under the Agreement
resulted in the VideoFusion Holders receiving a total of 205,996 shares of
Radius Common Stock when the correct number was 207,939 shares. Accordingly,
on June 1, 1995 Radius will issue and deliver to the VideoFusion Holders, in the
same proportion as the conversion pursuant to Section 1.1.1 of the Agreement,
1,943 additional fully paid and nonassessable shares of Radius Common Stock.
6. CONFLICTS AND INTENT. In the event that the provisions of this Third
Amendment conflict with the provisions of the Agreement, the provisions of the
Third Amendment shall prevail and control. The issuance of Radius Common Stock
and the cash payment required by this Third Amendment are intended to and do
constitute full and final payment, in satisfaction of Section 1 of the
Agreement, for the VideoFusion Common Stock tendered to Radius by the
VideoFusion Holders in connection with the Merger.
7. COUNTERPARTS. This Third Amendment may be executed in counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
RADIUS INC.
By:
----------------------------------------
Charles W. Berger
Chairman and CEO
-2-
<PAGE>
VIDEOFUSION HOLDERS:
- --------------------
THE FIFTH THIRD BANK OF NORTHWESTERN
SPECTRA GROUP LIMITED, INC. OHIO. N.A. TRUSTEE FOR ANTHONY M.
IANNONE
By: By:
---------------------------- ----------------------------
Joel P. Epstein Rebecca Z. Hasselbeck
President Assistant Trust Officer
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MICHAEL S. BEGEMAN BRADLEY C. BEHRENDT
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JOSEPH W. KLINGER DAVID J. KVACH
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HAROLD A. MCMASTER NORMAN C. NITSCHKE
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SCOTT A. PRIGGE JEFFREY A. SCHINDLER
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CLIFTON L. VAUGHAN
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RADIUS INC. SECTION 401(K) PLAN
LOAN POLICY
AMENDED AS OF NOVEMBER 14, 1995
Terms used in this Loan Policy shall have the same meanings as in the
Radius Inc. Section 401(k) Plan (the "Plan").
1. LOAN APPLICATION. Any Member may apply for a loan from the Plan. For
purposes of this Loan Policy, the term "Member" means any participant or
beneficiary who is a party in interest (as determined under ERISA Section 3(14))
with respect to the Plan. A Member must apply for each loan in writing with an
application specifying the amount of the loan desired, the requested duration
for the loan, the purpose for the loan and the source of security for the loan.
The Committee will not approve any loan if a Member is not creditworthy.
The principal amount will be funded first from the Member's rollover
contribution account, if any, then from the vested interest in matching and
additional contributions, if any, and finally, from elective contributions. All
loans shall be withdrawn from the investment funds directed by the Member. The
Plan will credit the interest earned on the promissory note and any principal
payments paid by the Member to those investment funds in which the Member is
investing his or her accounts at the time of such deposit, or in such other
investment fund as the Committee may designate.
2. LIMITATION ON LOAN AMOUNT/PURPOSE OF LOAN. The Committee will not
approve any loan to a Member in an amount which exceeds 50% of his or her
nonforfeitable account balance, as reflected by the books and records of the
Plan immediately after the loan is made. The maximum aggregate dollar amount of
loans outstanding to any Member may not exceed $50,000 minus the excess of the
Member's highest outstanding loan balance during the one year period ending on
the date of the loan over the current outstanding loan balance on loans from the
Plan. A Member may not request a loan for less than $1,000 and all loans must be
in multiples of $100. A Member may not receive more than two loans in any Plan
Year. A Member is entitled to a loan for any purpose.
3. TERMS OF LOAN. The Committee will document every loan in the form of
a promissory note signed by the Member for (i) the face amount of the loan and
(ii) a commercially reasonable rate of interest. The Committee will determine
the appropriate interest rate by obtaining at least one quote from a financial
institution chosen by the Committee that is in the business of lending money.
The interest rate quote(s) must take into account the term of the loan, the
security on the loan, the creditworthiness of the Member, the intended use of
the loan proceeds and must reflect a commercially reasonable rate for the
geographical region in which the Member lives. If Members in the Plan live in
different geographical regions, the Committee may establish a uniform
commercially reasonable interest rate applicable to all regions based on
information obtained from at least one region in which Members live. The
Committee must reevaluate interest rates for loans made more than one month
since the last loan made by the Plan.
The interest rate for a loan of 5 years or less will be considered
reasonable by Comerica, the Plan's trustee, if it falls within the range of the
following guidelines:
(a) the prime rate of interest offered by Bank of America plus one point;
(b) the prime rate of interest as published in THE WALL STREET JOURNAL
plus one point;
(c) the interest rate offered by Bank of America for similar personal
secured loans; or
(d) the interest rate equal to the discount rate plus five points.
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The range of rates applicable as a guideline for a 15-year loan (available
only for the purchase of a principal residence) will be:
(a) the rate of interest available from Bank of America for a 15-year
conventional fixed rate mortgage;
(b) a rate equal to the computed yield of the Federal Home Loan Mortgage
Corporation (FREDDIE MAC) on 15-year mortgage commitments for delivery
within 30 days for standard conventional fixed rate mortgages; or
(c) a rate equal to the computed yield of the Federal National Mortgage
Association (FANNIE MAE) on 15-year mortgage commitments for delivery
within 30 days for standard conventional fixed rate mortgages.
The Committee will determine whether the interest rate is commercially
reasonable at the time the loan request is received.
4. PAYMENT. The Committee will fix the term for repayment of any loan;
provided however, that in no instance may the term of repayment be greater than
5 years, unless the loan qualifies as a home loan. The Committee may fix the
term for repayment of a home loan for a period not to exceed 15 years. A "home
loan" is a loan used to acquire a dwelling unit which, within a reasonable time,
the participant will use as a principal residence.
The loan must provide for at least quarterly payments under a level
amortization schedule. All loans to Members shall be repaid through automatic
payroll withholding in substantially equal amounts. If a Member with a loan
outstanding terminates service with Radius, such Member may continue to make
payment on such loan in accordance with a revised repayment schedule as
described below. If the Member does not execute the necessary paperwork to
provide for such continued repayment within 30 days following such Member's date
of termination, the loan shall become immediately due and must be paid in full.
All loans will be made in compliance with Regulation Z ("Truth in Lending") and
Regulation B ("Equal Credit Opportunity").
A terminated employee who selects to continue making payments on his or her
loan rather than repay it in full will be provided with a revised payment
schedule. Upon completion of the proper paperwork, the Member will receive his
or her revised payment schedule from the Plan's trustee. It is the
responsibility of the Member to comply with his or her revised payment schedule.
The Plan's trustee and administrator will charge fees associated with the
revised payment schedule. These charges will be deducted from the Member's
account quarterly. Payments on the revised payment schedule will not be
allocated to Member's choices of fund(s) until cleared.
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5. SECURITY FOR LOAN. A Member must adequately secure each loan with an
irrevocable pledge and assignment of no greater than 50% of the Member's
nonforfeitable account balance. This pledge will form part of the promissory
note signed by the Member.
6. DEFAULT/RISK OF LOSS. A loan for which a scheduled repayment is
delinquent for more than 60 days will be reviewed by the Committee to determine
appropriate action. The Committee will treat any loan in default if:
(a) any scheduled payment remains unpaid for more than 120 days;
(b) the Member makes or furnishes any representation or statement to the
Plan with respect to his or her application which proves to have been
false or incomplete in any material respect when made or furnished;
(c) there is any loss, theft, damage, destruction, sale or encumbrance to
or of any of the collateral, or the making of any levy, seizure or
attachment of or on the collateral, including a withdrawal of the
Member's nonforfeitable account balance from the Plan;
(d) the death of the Member;
(e) the dissolution, insolvency, business failure, appointment of
receiver of any part of the property of, assignment for the benefit
of creditors by, or the commencement of any proceeding under any
bankruptcy or insolvency laws of, by or against the Member;
(f) the Member fails to comply with any term of the promissory note; and
(g) the Member's account balance under the Plan and trust become
distributable to him.
Notwithstanding any provision of this Loan Policy, if a Member with a loan
outstanding terminates service with Radius and does not execute the necessary
paperwork to provide for continued repayment or pay the outstanding balance of
such loan in full within 30 days of such Member's date of termination, the
Committee will treat the loan as in default.
The Member will have the opportunity to repay the loan and resume current
status of the loan by paying any missed payment plus interest or, if
distribution is available under the Plan, the Member may request distribution of
an amount equal to the unpaid balance due under the promissory note. If the loan
remains in default, the Committee has the option of foreclosing on any
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security it holds or, to the extent a distribution to the Member is permissible
under the Plan, offset the Member's nonforfeitable account balance by the
outstanding balance of the loan. If there are unpaid amounts remaining, it will
be offset when the Member becomes entitled to a distribution.
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RADIUS INC.
1995 STOCK OPTION PLAN
As Adopted December 20, 1995
1. PURPOSE. The purpose of the Plan is to provide incentives to attract,
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent, Subsidiaries and
Affiliates, by offering them an opportunity to participate in the Company's
future performance through awards of stock options. Capitalized terms not
defined in the text are defined in Section 19.
2. SHARES SUBJECT TO THE PLAN.
2.1 NUMBER OF SHARES AVAILABLE. Subject to Sections 2.2 and 14,
the total number of Shares reserved and available for grant and issuance
pursuant to Awards under the Plan shall be Shares, consisting of 850,000 shares,
plus the total number of shares authorized for issuance, but not issued or
subject to outstanding options, under the Company's 1986 Stock Option Plan (the
"Prior Plan") as of the date of shareholder approval of this Plan. Any shares
issuable upon exercise of options granted pursuant to the Prior Plan that expire
or become unexercisable for any reason after the date of shareholder approval of
this Plan without having been exercised in full, shall no longer be available
for distribution under the Prior Plan, but shall be available for distribution
under this Plan. Subject to Sections 2.2 and 14, Shares shall again be
available for grant and issuance in connection with future Awards under the Plan
if such Shares cease to be subject to an Award for any reason other than the
exercise of such Award.
2.2 ADJUSTMENT OF SHARES. In the event that the number of
outstanding Shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under the Plan and (b) the
Exercise Prices of and number of Shares subject to outstanding Awards shall be
proportionately adjusted, subject to any required action by the Board or the
shareholders of the Company and compliance with applicable securities laws;
PROVIDED, HOWEVER, that fractions of a Share shall not be issued but shall
either be paid in cash at Fair Market Value or shall be rounded up to the
nearest Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. NQSOs (as defined in
Section 5 below) may be granted to employees, officers, directors, consultants,
independent contractors and advisors of the Company or any Parent, Subsidiary or
Affiliate of the Company; PROVIDED such consultants, contractors and advisors
render bona fide services not in connection with the offer and sale of
securities in a capital-raising transaction. A person may be granted more than
one Award under the Plan. No "Named Executive Officer" (as that term is defined
in Item 402(a)(3) of Regulation S-K promulgated under the Exchange Act) shall be
eligible to receive more than 1,000,000 shares at any time during the term of
this Plan pursuant to the grant of Awards hereunder.
4. ADMINISTRATION.
4.1 COMMITTEE AUTHORITY. The Plan shall be administered by the
Committee. Subject to the general purposes, terms and conditions of the Plan,
the Committee shall have full power to implement and carry out the Plan. The
Committee shall have the authority to:
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(a) construe and interpret the Plan, any Stock Option Agreement and any
other agreement or document executed pursuant to the Plan;
(b) prescribe, amend and rescind rules and regulations relating to the
Plan;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares subject to Awards;
(f) determine whether Awards will be granted in replacement of, or as
alternatives to, other Awards under the Plan or any other incentive or
compensation plan of the Company or any Parent, Subsidiary or
Affiliate of the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting and exercisability of Awards;
(i) correct any defect, supply any omission, or reconcile any
inconsistency in the Plan, any Award or any Stock Option Agreement;
(j) determine the disposition of Awards in the event of a Participant's
divorce or dissolution of marriage; and
(k) make all other determinations necessary or advisable for the
administration of the Plan.
4.2 COMMITTEE DISCRETION. Any determination made by the Committee
with respect to any Award shall be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of the Plan
or Award, at any later time, and such determination shall be final and binding
on the Company and all persons having an interest in any Award under the Plan.
The Committee may delegate to one or more officers of the Company the authority
to grant an Award under the Plan to Participants who are not Insiders of the
Company.
4.3 EXCHANGE ACT REQUIREMENTS. If two or more members of the Board
are Outside Directors, the Committee shall be comprised of at least two members
of the Board, all of whom are Outside Directors and Disinterested Persons. The
Company will take appropriate steps to comply with the disinterested director
requirements of Section 16(b) of the Exchange Act, including but not limited to,
the appointment by the Board of a Committee consisting of not less than two
persons (who are members of the Board), each of whom is a Disinterested Person.
It is the intent of the Company that the Plan and Awards hereunder satisfy and
be interpreted in a manner, that, in the case of Participants who are or may be
Insiders, satisfies the applicable requirements of Rule 16b-3 (or its successor)
of the Exchange Act. If any provision of the Plan or of any Award would
otherwise conflict with the intent expressed in this Section 4.3, that provision
to the extent possible shall be interpreted and deemed amended so as to avoid
such conflict.
5. STOCK OPTIONS. The Committee may grant Awards to eligible persons and
shall determine whether such Awards shall be Incentive Stock Options within the
meaning of the Code ("ISOs") or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Award, the Exercise Price of the Award, the period
during which the Award may be exercised, and all other terms and conditions of
the Award, subject to the following:
5.1 FORM OF OPTION GRANT. Each Award granted under the Plan shall be
evidenced by a Stock Option Agreement which shall expressly identify the Award
as an ISO or NQSO, and be in such form and
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contain such provisions (which need not be the same for each Participant) as the
Committee shall from time to time approve, and which shall comply with and be
subject to the terms and conditions of the Plan.
5.2 DATE OF GRANT. The date of grant of an Award shall be the date
on which the Committee makes the determination to grant such Award, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
the Plan will be delivered to the Participant within a reasonable time after the
granting of the Award.
5.3 EXERCISE PERIOD. Awards shall be exercisable within the times or
upon the events determined by the Committee as set forth in the Stock Option
Agreement; PROVIDED, HOWEVER, that no Award shall be exercisable after the
expiration of ten (10) years from the date the Award is granted; and PROVIDED
FURTHER that no ISO granted to a person who directly or by attribution owns more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Parent or Subsidiary of the Company ("TEN PERCENT
SHAREHOLDER") shall be exercisable after the expiration of five (5) years from
the date the Award is granted. The Committee also may provide for Awards to
become exercisable at one time or from time to time, periodically or otherwise,
in such number or percentage as the Committee determines.
5.4 EXERCISE PRICE. The Exercise Price shall be determined by the
Committee when the Award is granted and shall be not less than 50% of the Fair
Market Value of the Shares on the date of grant; PROVIDED, that (i) the Exercise
Price of an ISO shall be not less than 100% of the Fair Market Value of the
Shares on the date of grant and (ii) the Exercise Price of any ISO granted to a
Ten Percent Shareholder shall not be less than 110% of the Fair Market Value of
the Shares on the date of grant. Payment for the Shares purchased may be made
in accordance with Section 6 of the Plan.
5.5 METHOD OF EXERCISE. Awards may be exercised only by delivery to
the Company of a written exercise agreement (the "EXERCISE AGREEMENT") in a form
approved by the Committee (which need not be the same for each Participant),
stating the number of Shares being purchased, the restrictions imposed on the
Shares, if any, and such representations and agreements regarding Participant's
investment intent and access to information and other matters, if any, as may be
required or desirable by the Company to comply with applicable securities laws,
together with payment in full of the Exercise Price for the number of Shares
being purchased.
5.6 TERMINATION. Notwithstanding the exercise periods set forth in
the Stock Option Agreement, exercise of an Award shall always be subject to the
following:
(a) If the Participant is Terminated for any reason except death or
Disability, then Participant may exercise such Participant's Awards
only to the extent that such Awards would have been exercisable upon
the Termination Date and for the period of time after the Termination
Date that is specified by the Committee, not to exceed five years. In
the event that the Committee fails to specify such a time period, such
Awards may be exercised no later than thirty (30) days after the
Termination Date. However, in no event may such Awards be exercised
after the expiration date of the Awards.
(b) If the Participant is terminated because of death or Disability (or
the Participant dies within the period of time that is specified by
the Committee for the exercise of Participant's Awards following such
termination or within Thirty (30) days of such termination if the
Committee failed to otherwise specify the time period, as described in
Section 5.6(a), above), then Participant's Awards may be exercised
only to the extent that such Awards would have been exercisable by
Participant on the Termination Date and must be exercised by
Participant (or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the Termination Date
in the case of disability or death (or such longer time period not
exceeding five years as may be determined by the Committee), but in
any event no later than the expiration date of the Awards.
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5.7 LIMITATION ON EXERCISE. The Committee may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Award;
PROVIDED that such minimum number will not prevent Participant from exercising
the Award for the full number of Shares for which it is then exercisable.
5.8 LIMITATIONS ON ISOS. The aggregate Fair Market Value (determined
as of the date of grant) of Shares with respect to which ISOs are exercisable
for the first time by a Participant during any calendar year (under the Plan or
under any other incentive stock option plan of the Company or any Affiliate,
Parent or Subsidiary of the Company) shall not exceed $100,000. If the Fair
Market Value of Shares on the date of grant with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year exceeds
$100,000, the Awards for the first $100,000 worth of Shares to become
exercisable in such calendar year shall be ISOs and the Awards for the amount in
excess of $100,000 that become exercisable in that calendar year shall be NQSOs.
In the event that the Code or the regulations promulgated thereunder are amended
after the Effective Date of the Plan to provide for a different limit on the
Fair Market Value of Shares permitted to be subject to ISOs, such different
limit shall be automatically incorporated herein and shall apply to any Awards
granted after the effective date of such amendment.
5.9 MODIFICATION, EXTENSION OR RENEWAL. The Committee may modify,
extend or renew outstanding Awards and authorize the grant of new Awards in
substitution therefor; PROVIDED that any such action may not, without the
written consent of Participant, impair any of Participant's rights under any
Award previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered shall be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Awards
without the consent of Participants affected by a written notice to them;
PROVIDED, HOWEVER, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 of the Plan for Awards
granted on the date the action is taken to reduce the Exercise Price.
5.10 NO DISQUALIFICATION. Notwithstanding any other provision in the
Plan, no term of the Plan relating to ISOs shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. PAYMENT FOR SHARE PURCHASES. Payment for Shares purchased pursuant to
the Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) by cancellation if indebtedness of the Company to the Participant;
(b) by surrender of Shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for within
the meaning of SEC Rule 144 (and, if such shares were purchased from
the Company by use of a promissory note, such note has been fully paid
with respect to such Shares); or (2) were obtained by Participant in
the public market;
(c) by tender of a full recourse promissory note having such terms as may
be approved by the Committee and bearing interest at a rate sufficient
to avoid imputation of income under Section 483 and 1274 of the Code;
PROVIDED, HOWEVER, that Participants who are not employees of the
Company shall not be entitled to purchase Shares with a promissory
note unless the note is adequately secured by collateral other than
the Shares; PROVIDED, FURTHER, that the portion of the Purchase Price
equal to the par value of the Shares, if any, must be paid in cash.
(d) by waiver of compensation due or accrued to Participant for services
rendered;
(e) by tender of property;
(f) provided that a public market for the Company's stock exists:
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(1) through a "same day sale" commitment from Participant and a
broker-dealer that is a member of the National Association of
Securities Dealers (a "NASD DEALER") whereby the Participant
irrevocably elects to exercise the Award and to sell a portion of
the Shares so purchased in order to pay for the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the Exercise Price directly to the
Company; or
(2) through a "margin" commitment from Participant and a NASD Dealer
whereby Participant irrevocably elects to exercise the Award and
to pledge the Shares so purchased to the NASD Dealer in a margin
account as security for a loan from the NASD Dealer in the amount
of the Exercise Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the exercise price
directly to the Company; or
(g) by any combination of the foregoing.
7. WITHHOLDING TAXES.
7.1 WITHHOLDING GENERALLY. Whenever Shares are to be issued in
satisfaction of Awards granted under the Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under the Plan, payments
in satisfaction of Awards are to be made in cash, such payment shall be net of
an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
7.2 STOCK WITHHOLDING. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise of any Award
that is subject to tax withholding and the Participant is obligated to pay the
Company the amount required to be withheld, the Committee may allow the
Participant to satisfy the minimum withholding tax obligation by electing to
have the Company withhold from the Shares to be issued that number of Shares
having a Fair Market Value equal to the minimum amount required to be withheld,
determined on the date that the amount of tax to be withheld is to be determined
(the "TAX DATE"). All elections by a Participant to have Shares withheld for
this purpose shall be made in writing in a form acceptable to the Committee and
shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, then except as provided below, the election shall be
irrevocable as to the particular Shares as to which the election
is made;
(c) all elections shall be subject to the consent or disapproval of the
Committee;
(d) if the Participant is an Insider and if the Company is subject to
Section 16(b) of the Exchange Act: (1) the election may not be made
within six (6) months of the date of grant of the Award, except as
otherwise permitted by SEC Rule 16b-3(e) under the Exchange Act, and
(2) either (A) the election to use stock withholding must be
irrevocably made at least six (6) months prior to the Tax Date
(although such election may be revoked at any time at least six (6)
months prior to the Tax Date) or (B) the exercise of the Award or
election to use stock withholding must be made in the ten (10) day
period beginning on the third day following the release of the
Company's quarterly or annual summary statement of sales or earnings;
and
(e) in the event that the Tax Date is deferred until six (6) months after
the delivery of Shares under Section 83(b) of the Code, the
Participant shall receive the full number of Shares
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with respect to which the exercise occurs, but such Participant shall
be unconditionally obligated to tender back to the Company the proper
number of Shares on the Tax Date.
8. PRIVILEGES OF STOCK OWNERSHIP.
8.1 VOTING AND DIVIDENDS. No Participant shall have any of the
rights of a shareholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
shall be a shareholder and have all the rights of a shareholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares.
8.2 FINANCIAL STATEMENTS. The Company shall provide financial
statements to each Participant annually during the period such Participant has
Awards outstanding; PROVIDED, HOWEVER, the Company shall not be required to
provide such financial statements to Participants whose services in connection
with the Company assure them access to equivalent information.
9. TRANSFERABILITY. Subject to Section 4.1(j), Awards granted under the
Plan, and any interest therein, shall not: (a) be transferable or assignable by
the Participant, (b) be made subject to execution, attachment or similar
process, otherwise than by will or by the laws of descent and distribution or as
consistent with the specific Plan and Stock Option Agreement provisions relating
thereto or (c) during the lifetime of the Participant, be exercisable by anyone
other than the Participant, and any elections with respect to an Award, may be
made only by the Participant.
10. CERTIFICATES. All certificates for Shares or other securities
delivered under the Plan shall be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed.
11. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award shall not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed, as they are in effect on the date of grant of the
Award and also on the date of exercise or other issuance. Notwithstanding any
other provision in the Plan, the Company shall have no obligation to issue or
deliver certificates for Shares under the Plan prior to (a) obtaining any
approvals from governmental agencies that the Company determines are necessary
or advisable, and/or (b) completion of any registration or other qualification
of such shares under any state or federal law or ruling of any governmental body
that the Company determines to be necessary or advisable. The Company shall be
under no obligation to register the Shares with the SEC or to effect compliance
with the registration, qualification or listing requirements of any state
securities laws, stock exchange or automated quotation system, and the Company
shall have no liability for any inability or failure to do so.
12. NO OBLIGATION TO EMPLOY. Nothing in the Plan or any Award granted
under the Plan shall confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent, Subsidiary or Affiliate of the Company or limit in any
way the right of the Company or any Parent, Subsidiary or Affiliate of the
Company to terminate Participant's employment or other relationship at any time,
with or without cause.
13. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares or other
consideration, based on such terms and conditions as the Committee and the
Participant shall agree.
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14. CORPORATE TRANSACTIONS.
14.1 ASSUMPTION OR REPLACEMENT OF AWARDS BY SUCCESSOR. In the event
of (a) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the shareholders of
the Company and the Awards granted under the Plan are assumed or replaced by the
successor corporation, which assumption shall be binding on all Participants),
(b) a dissolution or liquidation of the Company, (c) the sale of substantially
all of the assets of the Company, or (d) any other transaction which qualifies
as a "corporate transaction" under Section 424(a) of the Code wherein the
shareholders of the Company give up all of their equity interest in the Company
(EXCEPT for the acquisition, sale or transfer of all or substantially all of the
outstanding shares of the Company), any or all outstanding Awards may be assumed
or replaced by the successor corporation (if any), which assumption or
replacement shall be binding on all Participants. In the alternative, the
successor corporation may substitute equivalent Awards or provide substantially
similar consideration to Participants as was provided to shareholders (after
taking into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of the Company held
by the Participant, substantially similar shares or other property subject to
repurchase restrictions no less favorable to the Participant.
In the event such successor corporation (if any) refuses to assume or
substitute Options, as provided above, pursuant to a transaction described in
this Subsection 14.1, such Options shall accelerate and become exercisable in
full at least ten days prior to and shall expire on the consummation of such
event at such times and on such conditions as the Board shall determine.
14.2 OTHER TREATMENT OF AWARDS. Subject to any greater rights granted
to Participants under the foregoing provisions of this Section 14, in the event
of the occurrence of any transaction described in Section 14.1, any outstanding
Awards shall be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation, sale of assets or other
"corporate transaction."
14.3 ASSUMPTION OF AWARDS BY THE COMPANY. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (a) granting an Award under the Plan in substitution of
such other company's award, or (b) assuming such award as if it had been granted
under the Plan if the terms of such assumed award could be applied to an Award
granted under the Plan. Such substitution or assumption shall be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under the Plan if the other company had applied the rules of
the Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award shall remain unchanged
(EXCEPT that the exercise price and the number and nature of Shares issuable
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
15. ADOPTION AND SHAREHOLDER APPROVAL. The Plan shall become effective on
the date that it is adopted by the Board (the "EFFECTIVE DATE"). The Plan shall
be approved by the shareholders of the Company (excluding Shares issued pursuant
to this Plan), consistent with applicable laws, within twelve months before or
after the Effective Date. Upon the Effective Date, the Board may grant Awards
pursuant to the Plan; PROVIDED, HOWEVER, that: (a) no Award may be exercised
prior to initial shareholder approval of the Plan; and (b) no Award granted
pursuant to an increase in the number of Shares approved by the Board shall be
exercised prior to the time such increase has been approved by the shareholders
of the Company. For so long as and whenever the Company is subject to Section
16(b) of the Exchange Act, the Company will comply with the requirements of Rule
16b-3 (or its successor), as amended, with respect to shareholder approval.
16. TERM OF PLAN. The Plan will terminate ten (10) years from the
Effective Date or, if earlier, the date of shareholder approval.
-7-
<PAGE>
17. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate
or amend the Plan in any respect, including without limitation amendment of any
form of Stock Option Agreement or instrument to be executed pursuant to the
Plan; PROVIDED, HOWEVER, that the Board shall not, without the approval of the
shareholders of the Company, amend the Plan in any manner that requires such
shareholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans or pursuant to the Exchange Act
or Rule 16b-3 (or its successor), as amended, thereunder; PROVIDED, FURTHER,
that no amendment may be made to outstanding Awards without the consent of the
Participant.
18. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the
Board, the submission of the Plan to the shareholders of the Company for
approval, nor any provision of the Plan shall be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options otherwise than under the Plan, and such arrangements
may be either generally applicable or applicable only in specific cases.
19. DEFINITIONS. As used in the Plan, the following terms shall have the
following meanings:
"AFFILIATE" means any corporation that directly, or indirectly through
one or more intermediaries, controls or is controlled by, or is under common
control with the Company where "control" (including the terms "controlled by"
and "under common control with") means the possession, direct or indirect, of
the power to cause the direction of the management and policies of the
corporation, whether through the ownership of voting securities, by contract or
otherwise.
"AWARD" means an award of an option to purchase Shares.
"STOCK OPTION AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee appointed by the Board to administer
the Plan, or if no committee is appointed, the Board.
"COMPANY" means Radius Inc., a corporation organized under the laws of
the State of California, or any successor corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, within the meaning of Section 22(e)(3) of the Code, as
determined by the Committee.
"DISINTERESTED PERSON" means a director who has not, during the period
that person is a member of the Committee and for one year prior to service as a
member of the Committee, been granted or awarded equity securities pursuant to
the Plan or any other plan of the Company or any Parent, Subsidiary or Affiliate
of the Company, except in accordance with the requirements set forth in Rules as
promulgated by the SEC under Section 16(b) of the Exchange Act, as such Rules
are amended from time to time and as interpreted by the SEC.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE PRICE" means the price at which a holder of an Award may
purchase the Shares issuable upon exercise of the Award.
"FAIR MARKET VALUE" means the value of a share of the Company's Common
Stock determined as follows:
-8-
<PAGE>
(a) if such Common Stock is then quoted on the Nasdaq National Market the
closing price on the Nasdaq National Market System, or, if no such
reported sale takes place on such date, the closing price on the next
preceding trading date on which a reported sale occurred;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, the closing price or, if no reported
sale takes place on such date, the closing price on the next preceding
trading day on which a reported sale occurred;
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices
on such date, as reported by THE WALL STREET JOURNAL, for the over-
the-counter market; or
(d) if none of the foregoing is applicable, by the Board in good faith.
"INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"OUTSIDE DIRECTOR" means any outside director as defined in Section
162(m) of the Code and the regulations issued thereunder.
"PARENT" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company, if at the time of the granting of
an Award under the Plan, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
"PARTICIPANT" means a person who receives an Award under the Plan.
"PLAN" means this Radius Inc. 1995 Stock Option Plan, as amended from
time-to-time.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock, no par value,
reserved for issuance under the Plan, as adjusted pursuant to Sections 2 and 14,
and any successor security.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of
granting of the Award, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
"TERMINATION" or "TERMINATED" means, for purposes of the Plan with
respect to a Participant, that the Participant has ceased to provide services as
an employee, director, consultant, independent contractor or adviser, to the
Company or a Parent, Subsidiary or Affiliate of the Company, except in the case
of sick leave, military leave, or any other leave of absence approved by the
Committee; PROVIDED, that such leave is for a period of not more than ninety
(90) days, or reinstatement upon the expiration of such leave is guaranteed by
contract or statute. The Committee shall have sole discretion to determine
whether a Participant has ceased to provide services and the effective date on
which the Participant ceased to provide services (the "TERMINATION DATE").
-9-
<PAGE>
Stock Option Exercise Notice For 1995 Stock Option
Radius Inc. Employee Name
215 Moffett Park Drive Date of Exercise
Sunnyvale, California 94089 Federal Employer Identification
Number 68-0101300
I hereby exercise the number of options as stated below to purchase shares of
Common Stock of Radius Inc. by delivering the aggregate purchase price as
follows (check as applicable and complete):
[ ] in cash in the amount of $____, receipt of which is acknowledged by
the Company;
[ ] by delivery of ____ fully-paid, nonassessable and vested shares of
the Common Stock of the Company owned by optionee for at least six (6)
months prior to the date hereof and owned free and clear of all liens,
claims, encumbrances or security interests, valued at the current Fair
Market Value (as Defined in the Plan) of $____ per share;
[ ] by the waiver hereby of compensation due or accrued for services
rendered in the amount of $____;
[X] through a "same day sale" as described in Section 5(b)(iv) of the
Grant; or
[ ] through a "margin" commitment as described in Section 5(b)(v) of the
Grant.
Option Grant Date: 12/16/87 Total
Number of Shares Exercised
Exercise Price per Share
Purchase Price of Shares
Fair Market Value per Share on
Date of Exercise
Fair Market Value of Shares
Gain upon Exercise
(This amount will appear on your W-2)
Federal Taxes @ 28.00%
California State Taxes @ 6.00%
Social Security Taxes @ 0.00%
Medicare @ 1.45%
Total Taxes
TOTAL AMOUNT DUE
Net Gain upon exercise
I desire to take title to the shares as follows:
[X] Individual [ ] Husband & wife as community property
[ ] Joint Tenants [ ] Tenants in Common
[ ] Other (e.g., partnership, custodian, trust, etc.)
The exact spelling of name (s) under
which title to the Shares shall be taken is: 0
---------------------
Signed:
--------------------
Social Security Number:
--------------------
Street Address:
--------------------
City, State, Zip
--------------------
Radius Inc. hereby acknowledges receipt of a check for:
------------------------
RADIUS INC.
By :
-----------------------
Stock Administrator
Date:
-----------------------
<PAGE>
ACKNOWLEDGEMENT, WAIVER AND
AMENDMENT TO RADIUS INC.
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT
Acknowledgement, Waiver and Amendment, dated as of December 14, 1995
(this "Amendment") to the Inventory and Working Capital Financing Agreement by
and between Radius Inc., a California corporation ("Customer"), and IBM Credit
Corporation, a Delaware corporation ("IBM Credit").
RECITALS:
A. Customer and IBM Credit have entered into that certain Inventory and
Working Capital Financing Agreement dated as of February 17, 1995 (as amended,
supplemented or otherwise modified from time to time, the "Agreement").
B. Customer is in default of its obligations to IBM Credit pursuant to
the Agreement.
C. Customer has requested that IBM Credit waive such defaults.
D. IBM Credit agrees to waive certain of such defaults on the terms and
subject to the conditions set forth below.
AGREEMENT:
NOW THEREFORE, in consideration of the mutual agreements provided for
below and for other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Customer and IBM Credit hereby agree as
follows:
Section 1. DEFINITIONS. (a) References in the Agreement to "Amendment" shall
mean this Acknowledgement, Waiver and Amendment to Radius Inc. Inventory and
Working Capital Financing Agreement between Customer and IBM Credit.
(b) References in the Agreement to "Special Event of Default" shall mean the
occurrence of any of the following:
(i) the failure to comply with or observe any material term, covenant or
agreement contained in the Amendment, including, without limitation, any terms
incorporated into the Agreement by way of the Amendment;
(ii) any representation, warranty, statement, report or certificate made or
delivered by or on behalf of Customer or any of its officers, employees, or
agents to IBM Credit was false in any material respect at the time when made and
the person making such statement knew or should have known that such statement
was false;
<PAGE>
(iii) Customer shall file a voluntary petition for bankruptcy protection,
cease to do business as a going concern, make any assignment for the benefit of
creditors, or a custodian, receiver, trustee, liquidator, administrator or
person with similar powers shall be appointed for Customer or any of its
properties, or have any of Customer's properties seized (other then the
application by Silicon Valley Bank of the proceeds of foreign accounts
receivable to Customer's obligations) or attached (except that with respect to
any property that is attached, such attachment may continue for a period not to
exceed 15 days), or take any action to authorize, or for the purpose of
effectuating, the foregoing;
(iv) Customer shall have filed against it an involuntary bankruptcy
petition and either (a) such petition shall not be dismissed within 45 days, (b)
during such 45 day period Customer shall not diligently take action to dismiss
such petition or (c) an order for relief shall have been issued in connection
with such petition;
(v) the dissolution or liquidation of Customer, or Customer shall take any
action to dissolve or liquidate Customer;
(vi) IBM Credit shall cease to have a first priority security interest in
any assets of Customer except to the extent IBM Credit shall have agreed to
subordinate such priority to Silicon Valley Bank; or
(vii) Customer willfully fails to comply with or observe any material
term, covenant or agreement contained in Sections 8.1, 8.2 and 8.3 the
Agreement; or
(viii) Customer willfully fails to notify IBM Credit of the occurrence of
a Default that could reasonably be expected to have a Material Adverse Effect.
(c) References in the Agreement to "Termination Date" shall mean March 31, 1996
or such other date as IBM Credit and Customer may agree to in writing from time
to time.
(d) All capitalized terms not otherwise defined herein shall have the
respective meanings set forth in the Agreement.
Section 2. ACKNOWLEDGEMENT BY CUSTOMER. (a) Customer acknowledges that from
and including October 10, 1995 Customer's Outstanding Advances have exceeded
Customer's Borrowing Base and that, as of the close of business on December 12,
1995, Outstanding Advances exceeded the Borrowing Base in the approximate amount
of $26,265,485. Customer acknowledges that, as a result thereof, Customer is in
default to IBM Credit under the terms of the Agreement in that Customer has
failed to repay the Outstanding Advances in an amount equal to the Shortfall
Amount.
2
<PAGE>
(b) Customer further acknowledges that as of the close of business on December
13, 1995 the principal amount of Outstanding Advances to Customer under the
Agreement was equal to $33,651,730.96. Customer agrees that Obligations of
Customer to IBM Credit under the Agreement shall be payable to IBM Credit
without counterclaim, offset or defense.
(c) Customer further acknowledges that for the period ending September 30, 1995
Customer is in default of its financial covenants contained in Attachment A to
the Agreement.
(d) Customer further acknowledges and agrees that IBM Credit provided Customer
with a temporary increase in the Line of Credit and that all amounts advanced by
IBM Credit to or on behalf of Customer constitute, and all future amounts
advanced by IBM Credit to or on behalf of Customer shall constitute, Advances
made pursuant to the Agreement, whether or not the aggregate amount of such
Advances outstanding at any one time exceeds the amount of the Line of Credit.
Section 3. WAIVER. IBM Credit hereby waives the defaults by Customer with the
terms of the Agreement (i) to the extent that on or prior to the date hereof
Customer has failed to repay the Outstanding Advances to the extent set forth in
Section 2(a) of this Amendment, (ii) to the extent that on or prior to September
30, 1995 Customer failed to comply with the financial covenants set forth in
Attachment A of the Agreement and (iii) to the extent that on or prior to the
date hereof Customer has failed to comply with any other terms of the Agreement;
PROVIDED, that as of the date hereof IBM Credit has knowledge of facts giving
rise to any such default or, if IBM Credit does not have knowledge of facts
giving rise to such default, then such default could not reasonably be expected
to have a Material Adverse Effect.
Section 4. AMENDMENT TO AGREEMENT. The Agreement is hereby amended as follows:
A. Paragraph 4.1(C) of the Agreement is hereby amended by deleting such
subsection in its entirety and substituting, in lieu thereof, the following
subsection 4.1(C):
"(C) general intangibles, including, patents, trademarks, tradenames and
copyrights;"
B. Section 7 of the Agreement is hereby amended by inserting immediately after
subsection 7.15 the following new subsections 7.16, 7.17, 7.18, 7.19, 7.20,
7.21, 7.22, 7.23, 7.24, 7.25, 7.26, 7.27 and 7.28:
"7.16. On Site Collateral Verification. Customer shall from time to time
upon the request of IBM Credit allow employees, agents and representatives
of IBM Credit access, during normal
3
<PAGE>
business hours and as often as IBM Credit may request, to the premises,
inventory, books and records of Customer or any of its Subsidiaries to
verify the Collateral and Customer's compliance with the terms of this
Agreement and to discuss the business, operations, properties and financial
and other condition of the Company or any of its Subsidiaries with such
officers and employees and agents, including without limitation, its
independent certified public accounts, as IBM Credit may from time to time
request. Customer acknowledges and agrees that IBM Credit may from time to
time discuss with Customer Solutions, IBM North America (CSM), such matters
relating to Customer's compliance and ability to comply with the terms of
this Agreement as IBM Credit may reasonably determine, including, without
limitation, the condition of product being manufactured for Customer by
Customer Solutions, IBM North America (CSM) and financed by IBM Credit.
Customer shall use reasonable efforts to obtain permission from third party
facilities where Collateral is located for IBM Credit to have access to
such facilities to inspect and verify such Collateral.
7.17. Lockbox Participation and Special Account Deposits. Without limiting
Customer's other Obligations, Customer acknowledges and reaffirms its
obligations pursuant to Section 3.4 of this Agreement and acknowledges and
reaffirms that such obligations apply to all Accounts of Customer
including, without limitation, Accounts payable by account debtors that are
not residents of the United States (including Accounts that are payable by
Ingram Micro, Inc. (Canada) and Merisel Canada, Inc.) and Accounts payable
by an account debtor that is a remarketer of computer hardware and software
products whose purchases of such products from Customer have been financed
by another person who pays proceeds of such financing directly to Customer
on behalf of such account debtor. Customer agrees that if Customer
receives a remittance directly from an account obligor, then Customer shall
deposit the same into the Special Account within one Business Day of such
receipt.
7.18. Further Assurances Regarding Patents, Trademarks, Tradenames and
Copyrights. Customer shall do and cause to be done all things necessary to
preserve and keep in full force and effect all registrations of patents,
trademarks, tradenames and copyrights necessary or advisable for the
profitable conduct of its business. With respect to any federal
registration of any patent, trademark, tradename or copyright or the filing
of any application therefor, Customer promptly shall cooperate with IBM
Credit to deliver to IBM Credit a collateral assignment with respect to
each such registration and application, in form and substance satisfactory
to IBM Credit. IBM Credit shall prepare the form of collateral assignment
based upon information provided by
4
<PAGE>
Customer and upon execution by Customer IBM Credit shall file such
collateral assignment with the appropriate agency. Whenever, Customer,
either by itself or through any agent, employee, licensee or designee,
shall file an application for the registration of any patent, trademark,
tradename or copyright with the United States Patent and Trademark Office
or United States Copyright Office, Customer shall report such filing to IBM
Credit within five Business Days after the last day of the fiscal quarter
in which such filing occurs. Upon request of IBM Credit, Customer shall
execute and deliver any and all agreements, instruments, documents, and
papers, which IBM Credit shall prepare based upon information provided by
Customer, as IBM Credit may request to evidence and/or perfect IBM Credit's
security interest in any patent, trademark, tradename or copyright and the
goodwill and general intangibles relating thereto or represented thereby,
and Customer hereby constitutes IBM Credit its attorney-in-fact to execute
and file all such writings for the foregoing purposes, all acts of such
attorney being hereby ratified and confirmed; such power being coupled with
an interest is irrevocable until the Obligations are paid in full and this
Agreement is terminated. For the purposes of enabling IBM Credit to
exercise its rights and remedies under this Agreement, Customer hereby
grants to IBM Credit, to the extent assignable, an irrevocable, non-
exclusive license (exercisable without payment of royalty or other
compensation to Customer) to use, assign, license or sublicense, following
the occurrence of an Event of Default and the exercise by IBM Credit of its
rights and remedies with respect thereto, any of the Collateral consisting
of patents, trademarks, tradenames or copyrights now owned or hereafter
acquired by Customer, wherever the same may be located, including in such
license reasonable access to all media in which any of the licensed items
may be recorded or stored and to all computer programs used for the
compilation or printout thereof. Upon payment in full of all Obligations
and cancellation or termination of the Line of Credit or earlier release of
the Collateral, the license granted by Customer pursuant to the immediately
preceding sentence shall be terminated.
7.19. Proceeds of the Sale of Assets or Operations or Capital Infusion.
Customer agrees that, and shall make such arrangements and execute such
agreements, documents, instruments and papers as IBM Credit may request to
provide that, upon the consummation of any sale of assets (other than
inventory and used or obsolete equipment in the ordinary course of business
and the return of inventory located at Charlotte to vendors for credit) or
operations of Customer, including, without limitation, the contemplated
sale of Customer's Color Server Group division, and the consummation of any
equity investment, debt issue or capital infusion from any source, the
proceeds of such sale, equity investment, debt
5
<PAGE>
issue or capital infusion, net of all reasonable and customary costs and
expenses thereof, shall be transferred directly to an account of IBM Credit
specified by IBM Credit and applied to Customer's Obligations under this
Agreement. Customer acknowledges that nothing herein shall be construed as
consent by IBM Credit to any such sale, equity investment, debt issue or
capital infusion.
7.20. Monthly Financial Statements. Without limiting Customer's other
Obligations, Customer acknowledges and reaffirms its obligations pursuant
to Section 7.1(B)(1) of this Agreement to provide certified fiscal month
Financial Statements within twenty (20) Business Days following the end of
each fiscal month.
7.21. Collateral Reconciliation Reports. Customer shall provide to IBM
Credit on each Business Day a Collateral Reconciliation Report as of the
close of business on the Business Day immediately preceding the day such
report is provided to IBM Credit. Such Collateral Reconciliation Report
shall be in form and detail satisfactory to IBM Credit and shall include
back-up documentation supporting such reconciliation in form and detail
satisfactory to IBM Credit. Such Collateral Reconciliation Report shall
reconcile the most recently preceding Collateral Reconciliation Report to
such Collateral Reconciliation Report and shall include new sales,
collections, credits issued, purchases, returns and any other item
affecting the accounts receivable or inventory balance since the prior
reconciliation. Such Collateral Reconciliation shall also include a
summary of domestic gross receivables and domestic Eligible Receivables,
foreign gross receivables and foreign eligible receivables and a summary of
gross inventory and eligible inventory by location for purposes of
determining the Overadvance Collateral Amount.
7.22. Listings and Reconciliations. Customer shall provide to IBM Credit
on or prior to December 22, 1995 a listing, in form and detail satisfactory
to IBM Credit in its reasonable discretion, of (i) all accounts maintained
by Customer containing cash or cash equivalents (ii) all funds received by
Radius, including without limitation all funds deposited into bank accounts
of Radius, from November 10, 1995 to and including December 8, 1995.
Customer shall provide on or prior to December 22, 1995 copies of all
statements received by Customer from August 31, 1995 to November 1, 1995
relating to accounts referred to in clause (i) above and a reconciliation
of account balances on August 31, 1995 to account balances on October 31,
1995. Customer shall provide to IBM Credit on or prior to December 22,
1995 a copy of all statements received by Customer for the month of
November with a reconciliation of account balances on October 31, 1995 to
November 30, 1995. Customer shall provide to IBM Credit on or
6
<PAGE>
prior to the twentieth (20th) Business Day following each fiscal month a
copy of all statements received by Customer for such month along with a
reconcilation of account balances in such account from the preceding
statement to account balances in such account as of the date of such
statement. Customer shall provide to IBM Credit on or prior to December 22,
1995 an accounts receivable report, in form and detail satisfactory to IBM
Credit in its reasonable discretion, of pending credits, disputed accounts,
credits issued, collected funds not yet applied and outstanding accounts
receivable, in each case as of the November fiscal month end for the
following classes of accounts receivable: international accounts
receivable, finance company accounts receivable and domestic accounts
receivable. Customer shall provide to IBM Credit on or prior to December
22, 1995 an inventory report, in form and detail satisfactory to IBM Credit
in its reasonable discretion, of pending credits, credits issued, and
inventory on hand as of the November fiscal month end.
7.23. Use of Advances. Unless otherwise consented to by IBM Credit,
Customer shall use the proceeds of Advances, which shall be made in
accordance with paragraph 7.27 below, to operate its business in a cost
effective manner. Customer shall use its best efforts to minimize
discretionary uses of cash.
7.24. Price Protection Credits. Customer shall not, without IBM Credit's
prior consent, announce any program for price protection credits that could
have the effect of reducing accounts receivable in which IBM Credit has a
security interest.
7.25. Additional Reporting Requirements. Customer shall deliver to IBM
Credit, on the first Business Day of each week, a listing, in form and
detail satisfactory to IBM Credit in its reasonable discretion, as of the
Saturday immediately preceding such Business Day, of (i) Customer's
inventory, (ii) the location of such inventory and (iii) the lower of the
cost (net of any applicable credits) and the fair market value of such
inventory. Customer shall deliver to IBM Credit, on the last Business Day
of each week, a cash flow projection, in form and detail satisfactory to
IBM Credit in its reasonable discretion, for the immediately following week
and each week remaining in such fiscal quarter based upon Customer's best
estimate of minimum levels of activity for such week to support Customer's
on going business activities. Customer shall provide to IBM Credit on or
prior to December 15, 1995 draft Financial Statements for the fiscal year
ending September 30, 1995. Customer shall provide to IBM Credit on or
prior to December 15, 1995 projected quarterly Financial Statements for the
fiscal year ending September 30, 1996. Customer shall provide to IBM
Credit on the first Business Day
7
<PAGE>
of each week, a projection, in form and detail satisfactory to IBM Credit
in its reasonable discretion, for such week of Customer's Outstanding
Advances and Customer's Borrowing Base plus Overadvance Collateral Amount.
7.26. Advances During Overadvance Period. (a) Notwithstanding any other
term or provision of this Agreement, IBM Credit and Customer agree that:
(i) during the Overadvance Period Customer shall not be in default of this
Agreement as a result of the Outstanding Advances exceeding the Borrowing
Base, and (ii) all collections from the date of this Amendment, including,
without limitation, collections of accounts receivable and the proceeds of
the contemplated sale of the Customer's Color Server Group division, shall
be remitted directly to the Special Account of Customer maintained at
Silicon Valley Bank, or in IBM Credit's discretion, directly to an account
of IBM Credit, to be applied by IBM Credit toward Outstanding Advances,
fees and interest owing by Customer. During the Overadvance Period, so
long as no Special Event of Default shall have occurred, IBM Credit shall
from time to time, upon the request of Customer, make Advances to or on
behalf of Customer in an aggregate amount up to the amount equal to the
percentages of collections set forth below, during the Overadvance Period,
of accounts receivable representing sales by Customer of inventory in the
ordinary course of business (excluding, without limitation, the proceeds of
the contemplated sale of the Customer's Color Server Group division):
Percent
-------
First $3,000,000 per week 90%
Next $500,000 per week 60%
Next $500,000 per week 40%
Additional collections 10%
per week
(b) If during any rolling four week period during the Overadvance Period
IBM Credit shall have collected pursuant to the foregoing clause (ii)
(after taking into account any Advances already made that are attributable
to collections) an amount in excess of the percentages of collections
during such four week period set forth below, IBM Credit shall from time to
time, upon the request of Customer, make an additional Advance to Customer
under the Agreement in an amount up to such excess (less the amount of any
Advances previously made pursuant to this provision):
8
<PAGE>
Percent
-------
First $12,000,000 per 10%
rolling four week period
Next $2,000,000 per 40%
rolling four week period
Next $2,000,000 per 60%
rolling four week period
Additional Collections per 90%
rolling four week period
(c) The amounts set forth above shall be applied at the end of each week
on a pro rata basis based upon the number of elapsed weeks during the first
four weeks of the Overadvance period.
For purposes of illustration:
<TABLE>
<CAPTION>
Applicable Remit to Remit to
Collections Customer IBM Credit
----------- -------- ----------
<S> <C> <C> <C>
Week 1 $4,000,000 $3,200,000 $800,000
Week 2 $3,400,000 $2,940,000 $460,000
Week 3 $5,000,000 $3,300,000 $1,700,000
Week 4 $2,000,000 $1,800,000 $200,000
Week 5 $6,000,000 $3,400,000 $2,600,000
Weeks 1-4 Total $14,400,000 $11,240,000 $3,160,000
Weeks 2-5 Total $16,400,000 $11,440,000 $4,960,000
</TABLE>
In this illustration, after the second week IBM Credit would, upon the request
of Customer, make an Advance to Customer of an amount up to $20,000. After the
fourth week IBM Credit would, upon the request of Customer, make an Advance to
Customer an amount up to an additional $900,000 (e.g., $920,000 minus $20,000
previously advanced after the second week). After the fifth week IBM Credit
would, upon the request of Customer, make an Advance to Customer of an amount up
to an additional $480,000 (e.g., $1,400,000 minus $920,000 previously advanced).
(d) In the event that collections during any payroll period are
insufficient to permit Advances pursuant to Section 7.26(a) to be made
during such payroll period in an aggregate
9
<PAGE>
amount equal to Customer's payroll obligations (including withholding
taxes) for such pay period, IBM Credit agrees to make Advances during such
payroll period in an aggregate amount not to exceed such payroll obligation
(including withholding taxes); PROVIDED that Customer shall pay all
applicable taxes in connection therewith and remain current on all payroll
tax obligations; PROVIDED, FURTHER, that if any such Advance is made
pursuant to this paragraph, notwithstanding any other term or provision of
this Agreement to the contrary, all collections subsequent to such Advance
shall be applied to repay such Advance and shall be excluded from
collections for purposes of making new Advances pursuant to paragraph
7.26(a).
7.27. Sale of Color Server Group. Customer shall have received, and
delivered a copy thereof to IBM Credit of, (i) on or prior to December 1,
1995, a firm letter of intent, in form and substance satisfactory to IBM
Credit, for the purchase of Customer's Color Server Group division, and
(ii) on or prior to December 20, 1995, a contract, in form and substance
satisfactory to IBM Credit, for the sale of Customer's Color Server Group
division. On or prior to January 15, 1995, or such later date as IBM
Credit and Customer may agree, Customer shall have completed the sale of
Customer's Color Server Group for cash and remitted payment directly to IBM
Credit of the proceeds of such sale.
7.28. Subsidiaries. Customer shall not make any Investment in or loan to,
or transfer any assets to any Subsidiary or Affiliate without the prior
written consent of IBM Credit; provided that if IBM Credit consents to the
contemplated sale of Customer's Color Server Group division then such
consent shall be considered consent under this paragraph to the transfer of
the Color Server Group division to a Subsidiary of Customer in connection
with such sale."
C. Subsection 2.6 of the Agreement is hereby amended by deleting such
subsection in its entirety and substituting, in lieu thereof, the following
subsection 2.6:
"2.6. Shortfall. If, on any date other than during the Overadvance
Period, the Outstanding Advances shall exceed the Maximum Advance Amount
(such excess, the "Shortfall Amount"), then the Customer shall on such date
prepay the Outstanding Advances in an amount equal to such Shortfall
Amount.
"Overadvance Period": the period from December 5, 1995 to and including the
date that is the earlier of (1) the date Customer receives written notice
from IBM Credit following the occurrence of a Special Event of Default that
the Overadvance Period is being terminated, (2) the date thirty (30) days,
or such later date specified by IBM Credit, after Customer
10
<PAGE>
receives notice from IBM Credit during the continuance of a Default that
the Overadvance Period is being terminated, and (3) March 31, 1995.
"Overadvance Collateral Amount": at the time of determination, the sum of
(1) twenty percent (20%) of the lower of the aggregate invoice price to
Customer (net of any applicable credits) and fair market value of
Customer's inventory (excluding discontinued and obsolete product) in
locations for which IBM Credit has properly filed financing statements,
PLUS (2) sixty-five percent (65%) of the result, if such result is a
positive number, of (x) the aggregate of Accounts that are not Eligible
Accounts to the extent such Accounts are not Eligible Accounts solely
because such Accounts are payable by an account debtor that is not a
resident of the United States (excluding Accounts that are payable by
Ingram Micro, Inc. (Canada) and Merisel Canada, Inc.) MINUS (y) the amount
of any obligations of Customer to Silicon Valley Bank, PLUS (3) fifty
percent (50%) of Accounts that are not Eligible Accounts to the extent such
Accounts are not Eligible Accounts solely because such Accounts are payable
by an account debtor that is a remarketer of computer hardware and software
products whose purchases of such products from Customer have been financed
by another person who pays proceeds of such financing directly to Customer
on behalf of such account debtor."
D. Section 2 of the Agreement is hereby amended by inserting immediately
following Subsection 2.8 thereof the following new Subsection 2.9:
"2.9. Application of Collections by IBM Credit. Notwithstanding any other
terms set forth in this Agreement or any other agreement between Customer
and IBM Credit, Customer agrees that IBM Credit may from time to time apply
any and all monies, reserves and proceeds received or collected by IBM
Credit with respect to the Accounts and other Goods or property of Customer
at any time or times hereafter, including, without limitation, any and all
funds collected from the Lockbox and the Special Account, to pay or prepay,
as the case may be, any amounts owing by Customer to IBM Credit whether or
not such amounts are then due and payable, or IBM Credit may, in its sole
discretion, disburse any part of or all such monies, reserves and proceeds
to Customer. Customer agrees that IBM Credit may, but shall not be
obligated to, cause funds collected from the Lockbox to be swept on a daily
basis."
E. Paragraph 2.3(C) of the Agreement is hereby amended by inserting immediately
following the first sentence thereof, the following sentence:
"Notwithstanding the immediately preceding sentence, during
11
<PAGE>
the Overadvance Period, (i) Advances in an amount equal to the lesser of
(x) the Overadvance Amount and (y) the amount the Outstanding Advances
exceed the Maximum Advance Amount shall accrue a finance charge on the
unpaid principal amount thereof, at a per annum rate equal to the lesser of
(a) the finance charge set forth in Attachment A to this Agreement under
the caption "Overadvance Finance Charge" and (b) the highest rate from time
to time permitted by applicable law and (ii) Advances in excess of the
Overadvance Amount shall accrue a finance charge on the unpaid principal
amount thereof, at a per annum rate equal to the lesser of (a) the finance
charge set forth in Attachment A to this Agreement under the caption
"Excess Outstandings Finance Charge" and (b) the highest rate from time to
time permitted by applicable law; PROVIDED, HOWEVER, that in the event
Customer obtains credit insurance on Accounts described in clause 2 of the
definition of Overadvance Collateral Amount in form and substance
satisfactory to IBM Credit, A/R Advances in an amount equal to sixty-five
percent (65%) of the amount of Customer's Accounts subject to the terms and
provisions of such credit insurance that are unpaid less than ninety (90)
days from the date of invoice and payable by an account debtor that is not
a resident of the United States (excluding Accounts that are payable by
Ingram Micro, Inc. (Canada) and Merisel Canada, Inc.) shall accrue interest
at the rate set forth in the immediately preceding sentence."
F. Paragraph 2.4(D) of the Agreement is hereby amended by inserting
immediately following the second sentence of such paragraph the following new
sentence:
"In addition, during the Overadvance Period Customer shall be charged a fee
equal to the product of the amount of Outstanding Advances in excess of the
Borrowing Base to the extent it does not constitute a Shortfall Amount,
including any Advances made by IBM Credit resulting in Outstanding Advances
in excess of the Borrowing Base, multiplied by thirty (30) basis points."
G. Subsection 2.1 of the Agreement is hereby amended by inserting immediately
prior to the end of the last sentence of such subsection the following phrase:
"or during the Overadvance Period, the Maximum Overadvance Amount."
H. Subsection 9.1 of the Agreement is hereby amended by inserting immediately
following paragraph (Q) thereof, the following new paragraph (R):
"(R) notwithstanding paragraph (B) of this Subsection 9.1, Customer fails
to comply with or observe any term, covenant or
12
<PAGE>
agreement contained in the Amendment or contained in this Agreement by way
of the Amendment."
I. The Agreement is hereby amended by inserting immediately following
Attachment G thereto as Attachment H the Attachment H attached hereto.
J. The Agreement is hereby amended by deleting Attachment A to the Agreement in
its entirety and substituting, in lieu thereof, the Attachment A attached
hereto.
Section 5. ADDITIONAL COVENANTS. A. Customer agrees that prior to the close
of business on the date hereof Customer shall execute and deliver to each bank
at which it maintains a bank account, including, without limitation, the Bank of
America, a letter in substantially the form attached hereto as Exhibit 1
irrevocably directing such bank to transfer all funds received and held by such
bank from time to time on account of Customer to the Special Account at Silicon
Valley Bank. Customer agrees that prior to the close of business on the date
hereof Customer shall deposit to the Special Account at Silicon Valley Bank, all
cash and cash equivalents held by Customer or any third party on account of
Customer in excess of an aggregate amount of $1,500,000.00 (including $500,000
held by Bank of the West supporting a letter of credit for the account of
Customer). All amounts so deposited by Customer shall be deemed collections for
which Customer shall be eligible to receive Advances pursuant to paragraph 7.27.
B. Customer and IBM Credit agree to use good faith efforts to meet weekly to
discuss issues and concerns either party may have relating to the financing
relationship.
C. Customer agrees that on or prior to December 15, 1995 Customer shall provide
to IBM Credit a list in form and detail reasonably satisfactory to IBM Credit
describing all of Customer's patents, trademarks, tradenames and copyrights
registered with the United States Patent and Trademark Office or United States
Copyright Office and shall execute and deliver to IBM Credit for filing with the
appropriate offices any and all agreements, instruments, documents, and papers,
which shall be prepared by IBM Credit, as IBM Credit may request to evidence
and/or perfect IBM Credit's security interest in any such registered patents,
trademarks, tradenames or copyrights and the goodwill and general intangibles
relating thereto or represented thereby.
D. Customer agrees that all reports, listings, schedules and other information
provided by Customer to IBM Credit shall be correct and accurate to the best of
Customer's knowledge.
Section 6. REPRESENTATIONS AND WARRANTIES. Customer makes to IBM Credit the
following representations and warranties all of which
13
<PAGE>
are material and are made to induce IBM Credit to enter into this Amendment.
6.1 ACCURACY AND COMPLETENESS OF WARRANTIES AND REPRESENTATIONS. The
representations and warranties contained in the Agreement are true and
correct in all material respects on and as of the date of this Amendment as
though made on and as of such date except to the extent that IBM Credit has
knowledge of facts to the contrary or, if IBM Credit does not have
knowledge of any such contrary facts, the failure of such representations
or warranties to be true and correct in all material respects could not
reasonably be expected to have a Material Adverse Effect.
6.2 VIOLATION OF OTHER AGREEMENTS. The execution and delivery of this
Amendment and the performance and observance of the covenants to be
performed and observed under the Agreement as amended by this Amendment do
not violate or cause Customer not to be in compliance with the terms of any
agreement to which Customer is a party.
6.3 ENFORCEABILITY OF AMENDMENT. This Amendment has been duly authorized,
executed and delivered by Customer and is enforceable against Customer in
accordance with its terms.
Section 7. RATIFICATION OF AGREEMENT. Except as specifically amended hereby,
all of the provisions of the Agreement shall remain unamended and in full force
and effect. Customer hereby ratifies, confirms and agrees that the Agreement,
as amended hereby, represents a valid and enforceable obligation of Customer,
and is not subject to any claims, offsets or defenses. Except to the extent
specifically waived herein IBM Credit reserves any and all rights and remedies
that IBM Credit now has or may have in the future with respect to Customer,
including, without limitation, with respect to any defaults of financial
covenants existing on or prior to the date hereof. Except to the extent
specifically waived herein neither this Amendment, any of IBM Credit's actions
or IBM Credit's failure to act shall be deemed to be a waiver of any such rights
or remedies.
Section 8. GOVERNING LAW. This Amendment shall be governed by and interpreted
in accordance with the laws of the State of New York.
Section 9. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement.
SECTION 10. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND CUSTOMER HEREBY
IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
(INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH IBM
14
<PAGE>
CREDIT AND THE CUSTOMER ARE PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR
INDIRECTLY OUT OF THE AGREEMENT, THIS AMENDMENT OR ANY DOCUMENT, INSTRUMENT OR
AGREEMENT EXECUTED IN CONNECTION THEREWITH OR HEREWITH.
IN WITNESS WHEREOF, this Amendment has been executed by the duly authorized
officers of the undersigned as of the day and year first above written.
RADIUS INC.
By: /s/Dennis J. Dunnigan
---------------------
Name: Dennis J. Dunnigan
------------------
Title: CFO
------------------
IBM CREDIT CORPORATION
By: /s/ [illegible]
---------------------
Name: [illegible]
-------------------
Title: Manager of Credit
------------------
15
<PAGE>
Exhibit 11.01 --- COMPUTATION OF PER SHARE LOSS
(In thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Primary:
Average shares outstanding 15,049 13,598 12,905
Net effect of dilutive stock options -
based on the treasury stock method
using average market price - - -
--------- -------- --------
Totals 15,049 13,598 12,905
--------- -------- --------
--------- -------- --------
Net loss $(131,742) $(77,475) $(20,139)
--------- -------- --------
--------- -------- --------
Per share amount $ (8.75) $ (5.70) $ (1.56)
--------- -------- --------
--------- -------- --------
Fully diluted:
Average shares outstanding 15,049 13,598 12,905
Net effect of dilutive stock options -
based on the treasury stock method
using quarter end market price
which is greater than average
market price - - -
--------- -------- --------
Totals 15,049 13,598 12,905
--------- -------- --------
--------- -------- --------
Net loss $(131,742) $(77,475) $(20,139)
--------- -------- --------
--------- -------- --------
Per share amount $ (8.75) $ (5.70) $ (1.56)
--------- -------- --------
--------- -------- --------
</TABLE>
* The primary net loss per share is shown in the statements of operations. Net
loss per share under the primary and fully diluted calculations are
equivalent.
-56-
<PAGE>
EXHIBIT 21.01 --- LIST OF SUBSIDIARIES
SUBSIDIARY ADDRESS
FRANCE
Radius France S.A. BP422 World Trade Center
CNIT-2 Place De La Defense
92053 La Defense, France
Radius S.A.R.L. (shell corporation)
SuperMac Europe S.A.R.L. Dissolved on 1/11/95
ASIA
Radius KK Yanada Bld. 5F
6-7-10 Roppongi
Minato-ku, Tokyo
Japan
Nihon SuperMac K.K. Japan
SuperMac Asia Pacific Hong Kong (Dormant)
UNITED KINGDOM
Radius UK Ltd. 13 Westminster Court
Hipley Street
Old Woking,
Surrey GU22 9LQ
United Kingdom
SuperMac Technology Europe
GERMANY
Radius GmbH Grosse Bleichen 35
20354 Hamburg
Germany
OTHERS
Radius FSC Inc. Bay Street
Bridgetown
Barbados
Radius (Australia) Pty. Ltd. Level 5, 18-20 Orion Road
Lane Cove, NSW 2066
Australia
(Dormant)
Radius Canada Canada
-57-
<PAGE>
EXHIBIT 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-37376, 33-43116, 33-47525, 33-71636, 33-77238, 33-83824 and
33-59571) pertaining to the 1986 Stock Option Plan, the 1988 SuperMac
Technology, Inc. Stock Option Plan, the Directors' Stock Option Plan, the 1990
Employee Stock Purchase Plan, and Non-Plan Stock Options of Radius Inc. of our
report dated December 8, 1995, except for Note 11, as to which the date is
December 27, 1995, with respect to the consolidated financial statements and
schedule of Radius Inc. included in the Annual Report (Form 10-K) for the year
ended September 30, 1995.
/s/ Ernst & Young LLP
Palo Alto, California
December 28, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 4,760
<SECURITIES> 0
<RECEIVABLES> 70,176
<ALLOWANCES> 8,502
<INVENTORY> 15,071
<CURRENT-ASSETS> 2,336
<PP&E> 36,871
<DEPRECIATION> 33,840
<TOTAL-ASSETS> 87,878
<CURRENT-LIABILITIES> 143,664
<BONDS> 1,331
<COMMON> 125,876
0
0
<OTHER-SE> (182,993)
<TOTAL-LIABILITY-AND-EQUITY> 87,878
<SALES> 308,133
<TOTAL-REVENUES> 308,133
<CGS> 302,937
<TOTAL-COSTS> 302,937
<OTHER-EXPENSES> 121,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,068
<INCOME-PRETAX> (122,672)
<INCOME-TAX> 9,070
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (131,742)
<EPS-PRIMARY> (8.75)
<EPS-DILUTED> (8.75)
</TABLE>
